2021 (8) TMI 1365 - AT - Income Tax

Tribunal invalidates reassessment for lack of reasoning, quashes proceedings, and allows assessee's appeal.

M/s RN Khemka Enterprises (P) Ltd. Versus Income Tax Officer, Ward-20 (3), New Delhi.

M/s RN Khemka Enterprises (P) Ltd. Versus Income Tax Officer, Ward-20 (3), New Delhi. - TMI Issues Involved:1. Validity of reassessment proceedings under Section 147/148 of the Income Tax Act.2. Application of Section 153C versus Section 147.3. Adequacy of reasons recorded for reopening the assessment.4. Mechanical approval by the Principal Commissioner of Income Tax (Pr. CIT).5. Additions under Section 68 of the Income Tax Act for unexplained cash credits.6. Compliance with principles of natural justice.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 apply an independent mind and relied solely on the report from the Investigation Wing. The Tribunal found that the AO reproduced the information from the Investigation Wing without demonstrating how it led to the belief of income escapement. The Tribunal cited the Hon'ble Delhi High Court's decision in Pr. CIT vs. Meenakshi Overseas Pvt. Ltd., which emphasized that reasons for reopening must show a clear link between the tangible material and the formation of the belief. The Tribunal concluded that the reasons recorded were vague and lacked specific details, such as the identity of the deponents and the mode of accommodation entries, leading to the conclusion that there was non-application of mind by the AO.2. Application of Section 153C versus Section 147:The assessee initially argued that Section 153C should apply instead of Section 147. However, this ground was not pressed during the hearing, and the Tribunal dismissed it as not pressed.3. Adequacy of Reasons Recorded for Reopening the Assessment:The Tribunal found that the reasons recorded by the AO were incomplete and incoherent. The AO failed to identify specific seized materials, the mode of accommodation entries, and other critical details. This lack of specificity indicated non-application of mind, making the reassessment proceedings invalid. The Tribunal referenced multiple decisions, including Pr. CIT vs. Meenakshi Overseas Pvt. Ltd. and Sabh Infrastructure vs. ACIT, to support this conclusion.4. Mechanical Approval by the Principal Commissioner of Income Tax (Pr. CIT):The assessee argued that the Pr. CIT's approval for reopening the assessment was mechanical and lacked due application of mind. The Tribunal agreed, noting that the approval simply stated, 'Yes, it is a fit case of issue of notice u/s 148 r.w.s. 147 of the Act, 1961,' without any detailed reasoning. This mechanical approval contributed to the invalidation of the reassessment proceedings.5. Additions under Section 68 for Unexplained Cash Credits:The AO made additions under Section 68, citing unexplained cash credits from various entities. The assessee provided confirmations, bank statements, and other documents to substantiate the transactions. However, the AO rejected these explanations, primarily because the directors of the lending companies did not appear for deposition. The Tribunal found that the AO's action was unjustified, especially since the assessee had repaid the loans with interest and deducted TDS. The Tribunal emphasized that mere non-production of directors should not lead to adverse conclusions if the assessee has otherwise substantiated the transactions.6. Compliance with Principles of Natural Justice:The assessee argued that the AO did not provide an opportunity to cross-examine the individuals whose statements formed the basis for reopening the assessment. The Tribunal noted that the AO's failure to provide such an opportunity violated the principles of natural justice.Conclusion:The Tribunal concluded that the reassessment proceedings were invalid due to non-application of mind by the AO, mechanical approval by the Pr. CIT, and lack of specific details in the reasons recorded. Consequently, the reassessment proceedings were quashed, and the appeal filed by the assessee was allowed. The Tribunal did not adjudicate other arguments challenging the reassessment proceedings and the merits of the case, as the assessee succeeded on the primary legal ground.