2019 (3) TMI 1063 - AT - Income Tax

Invalid Reassessment Notice: ITAT Upholds Dismissal

Asstt. Commissioner of Income Tax, Circle 3 (2), New Delhi. Versus M/s Asis Plywood Pvt. Ltd.

The ITAT dismissed the department's appeal, affirming that the initiation of reassessment proceedings was flawed and unsustainable. The Assessing ... Reopening of assessment - receipt of accommodation entries - proof of independent application of mind by AO - as per AO assessee had not filed any return of income - information received from the Investigation Wing that the assessee was a beneficiary of accommodation entries received from certain established entry operators identified by the Investigation Wing - HELD THAT:- As decided in PR. COMMISSIONER OF INCOME TAX VERSUS RMG POLYVINYL (I) LTD. [2017 (7) TMI 371 - DELHI HIGH COURT] there was a failure of application of mind by the AO as it had proceeded on two wrong premises, one regarding non-filing of the return and second regarding the extent of accommodation entries - The court was unable to discern the link between the tangible material and the formation of the reasons to believe that income had escaped assessment. The information received from the Investigation Wing cannot be said to be tangible material per se without a further inquiry being undertaken by the Assessing Officer and in the present case, the AO had deprived himself of that opportunity by proceeding on the erroneous premise that the assessee had not filed the return when in fact it had. we uphold the findings of the Ld. CIT (A) in holding that the initiation of reassessment proceedings in the instant case was bad in law and not sustainable - Decided in favour of assessee. Issues:- Validity of reassessment proceedings under section 147 of the Income Tax Act, 1961 based on reasons to believe that income had escaped assessment.- Application of mind by the Assessing Officer in recording reasons for initiating proceedings under section 147.- Sufficiency of material for reopening assessment based on information received from the Investigation Wing.- Compliance with the provisions of sections 148 to 153 of the Act in initiating proceedings under section 147.Analysis:Issue 1: Validity of reassessment proceedings under section 147The appeal was filed by the Revenue against the order passed by the Ld. CIT (Appeals)-1, New Delhi for assessment year 2006-07. The Assessing Officer issued notice u/s 148 of the Act after recording reasons that income amounting to Rs. 1,44,00,500 had escaped assessment. The Ld. CIT (Appeals) quashed the notice and the assessment order, stating that the initiation of reassessment proceedings was bad in law and not sustainable. The department challenged this decision before the ITAT.Issue 2: Application of mind by the Assessing OfficerThe Ld. CIT (Appeals) noted that the reasons recorded by the Assessing Officer lacked independent application of mind. The Assessing Officer had merely reproduced information received from the Investigation Wing without verifying its veracity. Moreover, there was a contradiction in the assessment order where the original return of income was acknowledged to have been filed, but the reasons stated that no return was filed. This lack of application of mind rendered the notice u/s 148 devoid of validity.Issue 3: Sufficiency of material for reopening assessmentThe Ld. CIT (Appeals) held that the reasons for reopening, based on information from the Investigation Wing about accommodation entries, were insufficient. The Assessing Officer failed to provide basic details, names of parties, and nature of transactions regarding the accommodation entries. This mechanical recording of reasons without independent inquiry was considered inadequate to justify reopening the assessment.Issue 4: Compliance with statutory provisionsSection 147 of the Act allows the Assessing Officer to reassess income that has escaped assessment, subject to compliance with sections 148 to 153. The reasons recorded under section 148 must demonstrate the application of mind by the Assessing Officer. If the reasons are vague or ambiguous, the proceedings initiated under section 147 are deemed invalid. In this case, the ITAT upheld the findings of the Ld. CIT (Appeals) based on the lack of application of mind by the Assessing Officer, following a similar precedent set by the Hon'ble Delhi High Court in a related case.In conclusion, the ITAT dismissed the department's appeal, affirming the decision that the initiation of reassessment proceedings was flawed in law and unsustainable. The judgment emphasized the importance of the Assessing Officer's independent application of mind and the necessity for valid reasons to believe that income had escaped assessment before initiating proceedings under section 147 of the Income Tax Act, 1961.