2018 (2) TMI 871 - AT - Income Tax

Tribunal Invalidates Reassessment, Emphasizes Independent Assessment Process

The Tribunal invalidated the reassessment due to the lack of proper application of mind by the Addl.CIT and AO. The additions under Sections 68 and 69C ... Reopening of the assessment - non application of mind BY CIT-A - No proper sanction - Held that:- Perusal of the noting sheet dated 09.03.2010 to 30.12.2010 made available to the Bench for perusal shows that only AO has recorded that Addl.CIT has considered the reasons recorded before according the sanction, however even no prima facie material is there, if Addl.CIT has applied his mind by considering the reasons recorded before according the sanction. We are of the considered view that the AO who has recorded the reasons cannot enter into the mind of the sanctioning authority (Addl.CIT) discharging the quasi-judicial function for according valid sanction for reopening the assessment. Moreover, according sanction is not a supervisory role rather it is a quasi-judicial function to be performed by the Addl.CIT as required u/s 151 of the Act. When the Revenue Department is manned by highly qualified officers they are to evolve legally sustainable standard operating procedure for discharging quasijudicial function. Reassessment opened by the AO in this case is not sustainable in the eyes of law, hence hereby quashed. - Decided in favour of assessee Issues Involved:1. Deletion of addition under Section 68 of the Income Tax Act, 1961.2. Onus of proving the credibility of the applicants.3. Deletion of addition under Section 69C for commission paid.4. Validity of the reopening of assessment under Sections 147 to 151 of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Deletion of Addition under Section 68:The Revenue challenged the deletion of Rs. 1,04,50,000 made under Section 68 of the Income Tax Act, 1961, treating the credit as unexplained share application money. The Assessing Officer (AO) had reopened the assessment based on information that the assessee company had provided accommodation entries. The AO made an addition of Rs. 1,04,50,000 as unexplained cash credit under Section 68. The Commissioner of Income-tax (Appeals) [CIT(A)] deleted this addition, which the Revenue contested.2. Onus of Proving the Credibility of the Applicants:The Revenue argued that the assessee company had not discharged its onus of proving the credibility of the applicants from whom the share application money was received. The CIT(A) had erred in appreciating this aspect, leading to the deletion of the addition. The Tribunal examined the reasons recorded by the AO and found that the AO had not applied independent judicial mind and relied solely on the statement of one Shri P.K. Jindal without examining the profile of the companies involved.3. Deletion of Addition under Section 69C for Commission Paid:The Revenue also contested the deletion of Rs. 1,04,500 added under Section 69C on account of commission paid for obtaining the accommodation entries. The CIT(A) had deleted this addition, and the Revenue argued that the CIT(A) had not properly appreciated the facts and circumstances of the case.4. Validity of the Reopening of Assessment:The assessee company challenged the reopening of the assessment under Sections 147 to 151, arguing that the mandatory requirements were not complied with, and the approval was not valid. The Tribunal found that the Addl.CIT had accorded sanction without applying independent judicial mind, merely recording 'Yes. I am satisfied,' which was deemed mechanical and unsustainable. The Tribunal relied on the Supreme Court's judgment in CIT vs. S. Goyanka Lime & Chemical Ltd., which held that reopening based on mechanical sanction is invalid. The Tribunal also referred to the Delhi High Court's decision in Pr. CIT vs. N.C. Cables Ltd., emphasizing that the satisfaction of the sanctioning authority must be recorded meaningfully.The Tribunal concluded that the reassessment was not sustainable in law due to the lack of proper application of mind by the Addl.CIT and the AO. Consequently, the cross-objection filed by the assessee company was allowed, and the appeal filed by the Revenue became infructuous.Conclusion:The Tribunal quashed the reassessment, holding that the reopening of the assessment was invalid due to the mechanical and non-judicial sanction accorded by the Addl.CIT. The additions made under Sections 68 and 69C were deleted, and the appeal filed by the Revenue was dismissed as infructuous. The Tribunal emphasized the need for a meaningful and independent application of mind by the sanctioning authority in the process of reopening assessments.