2025 (3) TMI 88 - AT - Income Tax

Reopening of assessment u/s 147 - granting invalid approval u/s 151- Addition of unexplained cash loans and interest received - HELD THAT - There is non-application of mind on the facts and material coming on record. Apart from many errors one particular fact that the entire premise of which reopening has been done is that amount which has been alleged to have been paid by the assessee to Mr Nilesh Bharani / Evergreen Enterprises did not even pertain to A.Y. 2011-12. On perusal of the said seized documents placed in the paper book it is seen that the said amount falls in the period relevant to preceding A.Y.2010-11 because the date of alleged transaction was 20/01/2010 and this has also been mentioned in assessment order and also is relevant from the documents placed. This addition itself could not have been made in A.Y.2011-12. This itself shows that there is no application of mind. Invalid approval u/s.151 - We are also in agreement that the contention raised by the ld. Counsel that even the ld. PCIT while granting the approval u/s.151 has not seen these facts and particularly if the amount has been alleged to have been received or given to the firm Evergreen Enterprises in the impugned assessment years when the firm Evergreen Enterprises did not even exist at that time and how ld. AO could send reopening proposals in the assessment folders of a non-existing assessee. Thus we hold that the reasons recorded u/s.147 is based on incorrect assumption of facts and therefore the entire proceedings initiated vide notice u/s.148 is void ab initio and is hereby quashed. For A.Y.2012-13 to 2018-19 it has been pointed out that the entire basis for the addition made by the ld. AO is documents seized during the course of search - addition of interest earned and received in cash to be taxed as unexplained money in the hands of the assessee - From the bare perusal of the seized documents it is seen that the name mentioned as S.M. Joglekar with and with contact number. Nowhere this name or contact number pertain to the assessee because assessee is Mahesh N Joglekar and nowhere it has been brought on record whether S.M. Joglekar is the same as Mahesh N Joglekar. Further there is a reference of some name Ramesh Gala which also has no connection with the assessee. If the ld. AO is drawing some adverse inference based on these seized documents at least he should have verified whether it actually pertains to the assessee or not? Because neither assessee s name is Ramesh Gala nor S.M. Joglekar. Even in para 5.19 of the AO telephone diary seized also show alphabet J J/ 71/SJ where the name of assessee is not there. Once there is no name mentioned of the assessee in the seized documents then it cannot be said that it is an incriminating material to rope in any addition in the name of the assessee. Since the amounts assessed in the hands of the assessee did not pertain to him at all the additions made for the alleged amount of loan lent in cash and estimated interest earned thereon cannot be sustained and otherwise also for all the assessment years there is no other incriminating material in respect of the assessee is there or referred by the AO. Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The Tribunal considered several core legal issues in this judgment:

1. Whether the reassessment proceedings initiated under Section 147 of the Income Tax Act for AY 2011-12 were valid, given the alleged non-application of mind by the Assessing Officer (AO) and the Principal Commissioner of Income Tax (PCIT) in granting approval.

2. Whether the additions made under Section 69A of the Income Tax Act for unexplained cash loans and interest for AY 2011-12 were justified.

3. For AYs 2012-13 to 2018-19, whether the additions made in the absence of incriminating material found during the search were valid.

4. Whether the absence of a mandatory Document Identification Number (DIN) on the assessment orders for AYs 2012-13 to 2018-19 rendered the orders invalid.

5. Whether the approval granted under Section 153D of the Income Tax Act by the Additional Commissioner was competent and not mechanical.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Reassessment Proceedings for AY 2011-12

The Tribunal examined the legal framework under Section 147, which allows for reassessment if income has escaped assessment. The Tribunal noted several discrepancies in the reasons recorded by the AO for reopening the assessment, including incorrect facts about the original return filing date and declared income. The Court emphasized that these errors indicated a lack of due diligence and non-application of mind by the AO and PCIT. The Tribunal referenced precedents that require a thorough and independent application of mind for reopening assessments.

The Tribunal concluded that the reassessment proceedings were void ab initio due to incorrect assumptions and lack of proper approval, as the reasons for reopening did not pertain to the relevant assessment year.

2. Additions under Section 69A for AY 2011-12

The Tribunal considered the evidence related to alleged unexplained cash loans and interest. The AO's reliance on information from a search on a third party (Evergreen Enterprises) was deemed inappropriate, as the alleged transactions did not pertain to the assessee for the relevant assessment year. The Tribunal highlighted that the incriminating material did not directly implicate the assessee, and the AO failed to establish a direct nexus between the seized documents and the assessee.

The Tribunal found that the additions under Section 69A were unsustainable as they were based on incorrect assumptions and unrelated evidence.

3. Additions for AYs 2012-13 to 2018-19

The Tribunal assessed whether the additions made in these years were based on valid incriminating material. The AO had relied on seized documents from a search on another entity, which did not directly name the assessee. The Tribunal emphasized that for additions under Section 153A, there must be clear and specific incriminating evidence against the assessee. The Tribunal found that the evidence presented did not directly implicate the assessee, and thus, the additions were unjustified.

The Tribunal concluded that the absence of direct incriminating material against the assessee rendered the additions for these years invalid.

4. Absence of Mandatory DIN on Assessment Orders

The Tribunal noted the absence of a mandatory Document Identification Number (DIN) on the assessment orders for AYs 2012-13 to 2018-19. While this issue was raised, the Tribunal did not provide a detailed analysis as the appeals were decided on other grounds. However, the absence of DIN could potentially render the orders procedurally defective.

5. Competency of Approval under Section 153D

The Tribunal considered the allegation of mechanical approval by the Additional Commissioner under Section 153D. The Tribunal found that the approval process lacked the necessary scrutiny and independent application of mind, as evidenced by the reliance on incorrect and unrelated information. This further supported the Tribunal's decision to invalidate the additions.

SIGNIFICANT HOLDINGS

The Tribunal held that the reassessment proceedings for AY 2011-12 were void ab initio due to the incorrect assumptions and lack of proper approval. The Tribunal emphasized the necessity of a thorough application of mind in reassessment proceedings, as established in prior case law.

The Tribunal found that the additions under Section 69A for AY 2011-12 and the additions for AYs 2012-13 to 2018-19 were unsustainable due to the absence of direct incriminating material against the assessee. The Tribunal concluded that the reliance on evidence from a search on a third party was inappropriate without a direct nexus to the assessee.

The Tribunal's decision underscores the importance of proper procedural compliance and the need for clear and direct evidence when making additions based on incriminating material found during searches.

In conclusion, the appeals filed by the assessee were allowed, and the additions made by the AO were deleted.