2016 (1) TMI 1442 - AT - Income Tax

Reopening of assessment u/s 147 - vague notice - non communicating the reasons recorded as per law and without obtaining the valid sanction as per law and without complying with other mandatory conditions as envisaged u/s 147 to 151 - HELD THAT - AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. In our view the reasons are vague and are not based on any tangible material as well as are not acceptable in the eyes of law. The AO has mechanically issued notice u/s. 148 of the Act on the basis of information allegedly received by him from the Directorate of Income Tax (Investigation) New Delhi. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee we are of the considered view that the reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed. See Pr. CIT-4 vs. G G Pharma India Ltd. 2015 (10) TMI 754 - DELHI HIGH COURT and Signature Hotels (P) Ltd. vs. ITO 2011 (7) TMI 361 - DELHI HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147/148 of the Income Tax Act, 1961.
2. Addition of Rs. 10,00,000 under Section 68 of the Income Tax Act, 1961 on account of accommodation entries.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147/148:
The Assessee challenged the reassessment proceedings on the grounds that the Assessing Officer (AO) did not communicate the reasons for reopening the assessment and did not obtain valid sanction as required by law. The Assessee argued that the proceedings were initiated without complying with mandatory conditions under Sections 147 to 151 of the Income Tax Act, 1961.

The Tribunal examined the reasons recorded by the AO, which were based on information received from the Directorate of Income Tax (Investigation), New Delhi, regarding accommodation entries received by the Assessee. The AO had mechanically issued a notice under Section 148 based on this information without applying his mind to form an independent belief that income had escaped assessment.

The Tribunal found that the reasons recorded by the AO were vague and not based on tangible material. The AO had not conducted any inquiry into the material supplied to him and had not formed a prima facie opinion. The Tribunal relied on the Delhi High Court's judgment in the case of Pr. CIT vs. G&G Pharma India Ltd., which emphasized that the AO must apply his mind to the materials and form a belief that income has escaped assessment. The Tribunal concluded that the reopening of the assessment was bad in law and deserved to be quashed.

2. Addition of Rs. 10,00,000 under Section 68:
The AO had added Rs. 10,00,000 to the Assessee's income under Section 68, based on the information that the Assessee had received accommodation entries from one Satish Kumar Sharma. The AO concluded that the receipts from Satish Kumar Sharma were not reliable and genuine.

The Assessee appealed against this addition, and the CIT(A) deleted the addition, finding that the AO had not provided sufficient evidence to justify the addition. The Revenue appealed against the CIT(A)'s order, arguing that the CIT(A) had erred in deleting the addition.

However, since the Tribunal quashed the reassessment proceedings, there was no need to adjudicate on the addition of Rs. 10,00,000. Additionally, the Tribunal noted that the tax effect in the Revenue's appeal was less than Rs. 10,00,000, making the appeal not maintainable as per the CBDT Circular No. 21/2015, which prescribes monetary limits for filing appeals.

Conclusion:
The Tribunal allowed the Assessee's appeal, quashing the reassessment proceedings as invalid. Consequently, the addition of Rs. 10,00,000 under Section 68 was not adjudicated. The Revenue's appeal was dismissed due to the tax effect being below the prescribed limit.