2019 (8) TMI 1768 - AT - Income Tax

Validity of reopening of assessment - borrowed satisfaction v/s independent application of mind - Accommodation entries pertaining to bogus transaction - Assessee argued for non independent application of mind by AO - HELD THAT:- We find that the AO has reopened the assessment merely on the basis of information received from Director of Investigation (Inv)-II, Mumbai without conducting any enquiry at his own. Thus, the reasons recorded was not based on his own satisfaction, but on the borrowed satisfaction, which is clearly discernible from the reasons recorded for reopening of assessment.

As reasons were based on borrowed satisfaction, as the above reasons did not indicate any enquiry or examination of assessment records by the AO. Thus, the basis of the reasons of the AO was merely framed his opinion on the information provided by the DIT (Inv.)-II, Mumbai. We further find that the assessment has been reopened on the basis of statement given by third party. It is also noticed that in the reassessment order the AO at various instances depicted his reliance on information received from Director of Investigation (Inv) Mumbai without making his own inquiry, thus, the re-opening is based on borrowed satisfaction.

Denial of natural justice - The third party statement cannot be relied without allowing cross-examination. The assessment records showed that the assessee has demanded cross-examination but same was not allowed. The assessee has filed affidavit from Shri Bhanwarlal M. Jain wherein he has retracted for his statement recorded under section 132(4) of the Act. His affidavit was not examined. Thus, non allowing opportunity of cross examination renders assessment proceeding as invalid as held by the Hon`ble Supreme Court in the case of Andaman Timber Industries [2015 (10) TMI 442 - SUPREME COURT] held that not allowing the assessee to cross examine witnesses by Adjudicating Authority though statements of those witnesses were made basis of impugned order, amounted to serious flaw which makes impugned order nullity as it amounted to violation of principle of natural justice. - Decided in favour of assessee.