2016 (12) TMI 1816 - AT - Income Tax

Tribunal Invalidates Reassessment, Deletes Added Income, Interest Not Addressed

M/s Khatri Projects Pvt. Ltd. Versus Income Tax Officer, Ward-5 (2), Delhi

M/s Khatri Projects Pvt. Ltd. Versus Income Tax Officer, Ward-5 (2), Delhi - TMI Issues Involved:1. Validity of reassessment proceedings.2. Addition of Rs. 25,00,000 under Section 68 of the Income Tax Act as unexplained cash credit.3. Charging of interest under Sections 234B and 234A of the Income Tax Act.Detailed Analysis:1. Validity of Reassessment Proceedings:The appellant contended that the reassessment proceedings were invalid as the reasons recorded for reopening were vague and based on non-application of independent mind by the Assessing Officer (AO). The AO had issued the notice under Section 148 of the Income Tax Act based on information received from the Investigation Wing without independently verifying the material. The appellant cited several judicial precedents, including the Delhi High Court's decision in *G & G Pharma India Ltd.*, which emphasized that the AO must apply his mind to the material before forming a belief that income had escaped assessment. The tribunal found that the AO had acted mechanically on the information provided and did not apply his own mind, making the reassessment proceedings invalid.2. Addition of Rs. 25,00,000 under Section 68:The AO had added Rs. 25,00,000 to the appellant's income under Section 68, treating it as unexplained cash credit. The appellant argued that it had provided all necessary details, including names, addresses, PAN numbers, and confirmations from the share applicants. The AO issued notices under Section 133(6) to verify the genuineness and creditworthiness of the share applicants, but these notices were returned unserved. The AO concluded that the identity, creditworthiness, and genuineness of the transactions were not proved. The appellant contended that the AO did not provide an opportunity for cross-examination of the persons whose statements were used against it, violating principles of natural justice. The tribunal observed that the appellant had furnished sufficient documentary evidence, and the AO had not brought any contrary material on record. The tribunal held that the addition made by the AO was not justified and deleted the addition.3. Charging of Interest under Sections 234B and 234A:The appellant argued that the AO had erred in charging interest under Sections 234B and 234A of the Income Tax Act. However, since the primary grounds of appeal regarding the validity of reassessment and the addition under Section 68 were decided in favor of the appellant, the issue of interest became secondary. The tribunal did not specifically address this issue in detail, as the primary grounds were sufficient to dispose of the appeal.Conclusion:The tribunal allowed the appeal filed by the appellant, holding that the reassessment proceedings were invalid due to the AO's failure to apply his mind independently. The addition of Rs. 25,00,000 under Section 68 was also deleted, as the appellant had provided sufficient evidence to prove the genuineness and creditworthiness of the share applicants. The issue of charging interest under Sections 234B and 234A was not specifically addressed, as the primary grounds of appeal were decided in favor of the appellant.