2025 (4) TMI 939 - AT - Income Tax

Reopening of assessment u/s 147 - reasons to believe- non-compliance of strict conditions of jurisdictional provision of sec 147 r.w.s. 151 - HELD THAT - There is no reference or particulars about the date on which the information was received by the AO. There is also no reference of any objective particulars which led the AO to believe towards escapement of chargeable income. AO has merely quoted the entries routed through banking channels from various parties which were alleged to be accommodation entries. No basis has been referred to show his application of mind on the material if any to implicate the assessee with such vicious allegation. A plain reading of reasons would clearly show that re-opening proceedings have been initiated based on some generalized and uncorroborated information. There does not appear any application of mind on the so-called information (contents not available) collected by the AO. The circumstances narrated in the reasons recorded would show that the AO has proceeded on dotted lines as dictated in the information received. The reasons recorded apparently vouches for the fact that no immediate nexus or live link is reflected between any tangible material and the corresponding belief thereon towards escapement. In the instant case there is not even a line of reason which may justify the formation of belief. The AO in the instant case observes that the name of the assessee figures in the list of beneficiaries on share capital premium/loan. AO is not privy to even the nature of transaction whether the assessee is a beneficiary towards share capital premium or towards loan. Besides in the absence of any specific information of reliable character referred in the reasons the reasons are required to be construed as vague indefinite far-fetched and remote. The AO has also not bothered to take cognizance of basic facts such as income reported date of return filed or any assessment carried out earlier. The reasons recorded are apparently stereo-typed without any emphasis on the relevant facts. We thus find potency in the plea of the assessee that the reasons recorded and approval granted thereon u/s 151 do not meet the requirement of law at all and thus the issuance of notice u/s 148 based on cryptic and non-descript reasons combined with a mechanical approval thereon under s. 151 do not pass the test of judicial scrutiny. CIT(A) in our view has committed blatant error in endorsing the reasons recorded which are clearly plagued by the vice of being vague indefinite non-descript and distant and that too without providing an iota of sound reasoning. A solitary observation that the re-opening has been carried in the light of Investigation Report can be no basis to fasten the jurisdiction for re-assessment of completed assessment. Such findings of the CIT(A) against the assessee on the jurisdictional aspect cannot be countenanced in law. Consequently the notice under s. 148 to re-open the assessment is held to be void ab-initio and thus consequential re-assessment order is bad in law and therefore stands quashed. We notice that material collected from the Investigation Wing if any was never confronted to the assessee at any stage of the assessment. The assessment in the instant case was earlier carried out under s. 143(3) of the Act. As per the reasons recorded the AO has alleged that tangible material showing escapement of income seeks to dislodge the position taken by the assessee as per the return of income. However having not disclosed the information collected the onus continued to remain on the Revenue and was never discharged and therefore never shifted on the assessee. The process of reasoning adopted by the CIT(A) while affirming the stance of the assessee and reversing the additions appear to be on sound principles. We do not see any infirmity in the process of reasoning so adopted. Decided in favour of assessee.

Summary

The core legal questions considered by the Tribunal in this appeal include:

(i) Whether the Assessing Officer (AO) had valid jurisdiction to reopen the assessment under section 147 read with section 151 of the Income Tax Act, 1961 ("the Act") for the assessment year 2009-10;

(ii) Whether the reasons recorded by the AO for reopening the assessment met the statutory requirements of "reason to believe" that income had escaped assessment;

(iii) Whether the approval granted under section 151 of the Act for reopening the assessment was valid and not mechanical;

(iv) Whether the additions made under section 68 of the Act on account of share application money and share premium received by the assessee were justified on merits;

(v) Whether the estimated commission addition of INR 3,00,000/- on alleged accommodation entries was sustainable;

(vi) Whether the first appellate authority (CIT(A)) erred in reversing the additions and upholding the legality of the assessment proceedings.

Issue-wise Detailed Analysis

1. Jurisdiction to Reopen Assessment under Section 147 r.w.s 151 of the Act

Legal Framework and Precedents: Section 147 empowers the AO to reopen an assessment if he has "reason to believe" that income chargeable to tax has escaped assessment. Section 151 requires prior approval for issuance of notice under section 148. The "reason to believe" must be based on tangible material and an independent application of mind. Reliance was placed on judicial pronouncements emphasizing that mere information from the Investigation Wing, without corroborative material or objective particulars, cannot constitute valid reasons for reopening. The Apex Court and High Courts have held that the belief must be founded on something more than vague or generalized information, and the AO must have applied his mind objectively.

Court's Interpretation and Reasoning: The Tribunal closely examined the reasons recorded by the AO, which largely relied on a report from the Investigation Wing alleging accommodation entries routed through various companies. The reasons did not specify the date of receipt of information, nor did they contain any objective particulars or independent application of mind by the AO. The AO merely reproduced a list of transactions without establishing any nexus between the assessee and the alleged escapement of income.

The Tribunal noted the absence of any reference to the nature of transactions, the identity or creditworthiness of the parties involved, or any adverse material implicating the assessee. The approval under section 151 was found to be mechanical, lacking any independent scrutiny or evaluation of the material.

The Tribunal relied on a recent judgment of the Delhi High Court which held that information from the Investigation Wing cannot be the sole basis for reopening without further inquiry and objective material. The Tribunal concluded that the reasons recorded and approval granted failed to meet the legal threshold of "reason to believe."

Key Evidence and Findings: The reasons recorded were vague, indefinite, and non-descript. There was no material on record demonstrating any failure on the part of the assessee to disclose material facts. The AO did not confront the assessee with the information received from the Investigation Wing.

Application of Law to Facts: The statutory mandate for reopening was not satisfied. The reopening notice under section 148 was thus held to be void ab initio, and the consequential reassessment order was quashed.

Treatment of Competing Arguments: The Revenue contended that information from the Investigation Wing was sufficient to form belief. The Tribunal rejected this, emphasizing the need for corroborative material and independent application of mind. The CIT(A)'s endorsement of the reopening on the basis of the Investigation Wing's report was criticized as simplistic and contrary to settled law.

Conclusion: The reopening of assessment was invalid for lack of jurisdiction and failure to comply with statutory requirements.

2. Validity of Additions under Section 68 of the Act on Merits

Legal Framework and Precedents: Section 68 casts the burden on the assessee to prove the identity, creditworthiness, and genuineness of transactions relating to share application money or share capital. The assessee must furnish evidence to satisfy the AO about the source and nature of such credits. The Apex Court has held that if the share application money is received from bogus shareholders, the Department should proceed against those shareholders individually and not make additions in the hands of the company.

Court's Interpretation and Reasoning: The CIT(A) examined the evidentiary material furnished by the assessee, including copies of share applications, confirmations from shareholders, PAN details, bank statements, auditors' reports, and balance sheets. The shareholders were identifiable companies duly assessed to tax, with sufficient reserves and surplus to justify the investments. The AO's independent inquiries under section 133(6) and summons under section 131 did not elicit any adverse information or denial of investments by the shareholders.

The Tribunal found the CIT(A)'s reasoning sound and consistent with legal principles. The assessee had discharged its onus under section 68 by establishing the identity, creditworthiness, and genuineness of the transactions.

Key Evidence and Findings: Documentary evidence and confirmations from shareholders; absence of denial of investment; independent inquiries by AO confirming genuineness; sufficient financial capacity of shareholders.

Application of Law to Facts: The addition of INR 3 crore under section 68 was unwarranted and unjustified on the facts and law.

Treatment of Competing Arguments: The Revenue's contention of accommodation entries was not supported by any tangible material or adverse findings from inquiries. The Tribunal upheld the CIT(A)'s rejection of the addition.

Conclusion: The addition under section 68 was rightly deleted.

3. Addition of Estimated Commission on Accommodation Entry

The Revenue challenged the deletion of an addition of INR 3,00,000/- estimated as commission paid on alleged accommodation entries. The Tribunal did not specifically elaborate on this issue separately but treated it under the overall merits of the case. Given the rejection of the accommodation entry allegations and the absence of any adverse material, the addition was not sustained.

4. Legality of the First Appellate Order

The Tribunal found that the CIT(A) had correctly applied legal principles on both jurisdictional and merits aspects. The CIT(A) had considered the assessee's evidence, relevant case law, and the nature of inquiries conducted by the AO. The Tribunal criticized the CIT(A) for failing to adequately address the jurisdictional objections but nevertheless found the appellate order correct on merits and jurisdiction when viewed holistically.

Significant Holdings

"The reasons recorded apparently vouches for the fact that no immediate nexus or live link is reflected between any tangible material and the corresponding 'belief' thereon towards escapement."

"Information received from the investigating unit of the Revenue cannot be the sole basis for formation of belief that income of the assessee has escaped assessment."

"The issuance of notice under s. 148 based on cryptic and non-descript reasons combined with a mechanical approval thereon under s. 151 do not pass the test of judicial scrutiny."

"The appellant has produced complete documentary evidence to establish the identity and creditworthiness of the shareholder and genuineness of the transaction."

"The action of the Assessing officer in treating the share application money received by the appellant during the year under consideration as unexplained is not justified."

Core principles established include:

- The AO must have tangible, objective material and apply independent mind before reopening assessment under section 147.

- Information from the Investigation Wing, without corroboration or further inquiry, is insufficient to form "reason to believe."

- Mechanical approval under section 151 invalidates reopening.

- The assessee's burden under section 68 is to prove identity, creditworthiness, and genuineness of share capital transactions, which can be discharged by documentary evidence and confirmations.

- Additions cannot be made on mere suspicion or generalized allegations without substantive material.

Final determinations:

- The reopening notice under section 148 was invalid and void ab initio due to lack of jurisdiction.

- The reassessment order passed pursuant to such reopening was quashed.

- The additions under section 68 and estimated commission were rightly deleted on merits.

- The appeal of the Revenue was dismissed.