2021 (7) TMI 884 - AT - Income Tax

Tribunal overturns assessment for lack of independent verification, annuls unexplained cash credit addition.

The Tribunal allowed the appeal, setting aside the assessment order as the reopening lacked independent verification by the Assessing Officer and was ... Validity of reopening of assessment u//s 147 - information received from third party - non independent application of mind - HELD THAT:- As per the assessment order, it is clear that the assessee's case is reopened on the basis of the information received from the Director of Investigation and without applying his mind, the AO has reopened the case of the assessee. - Decided in favour of assessee. Issues Involved:1. Validity of reopening the assessment under sections 147/148 of the Income Tax Act, 1961.2. Justification for treating the amount received as unexplained cash credit under section 68 of the Income Tax Act, 1961.Issue-wise Analysis:1. Validity of Reopening the Assessment:The primary issue in this case was whether the reopening of the assessment by the Assessing Officer (AO) under sections 147/148 of the Income Tax Act was lawful. The assessee argued that the AO did not comply with the provisions of sections 147/148 and did not apply his mind independently before reopening the case. The AO had reopened the case based on information received from the Investigation Wing, without independent verification or application of mind. The Tribunal noted that the AO's action was based solely on third-party information, which was not sufficient for reopening an assessment. The Tribunal cited several judgments, including CIT v. Kamdhenu Steel & Alloys Ltd. and CIT v. Multiplex Trading & Industrial Co Ltd., where courts held that reopening based on third-party information without independent verification by the AO was invalid. The Tribunal concluded that the reopening of the assessment was not in accordance with the law, as the AO had acted mechanically without applying his own mind to the information received.2. Justification for Treating the Amount as Unexplained Cash Credit:The second issue was whether the AO was justified in treating the amount of Rs. 41,50,000 received by the assessee from M/s. Subhankar Dealcom Pvt. Ltd. as unexplained cash credit under section 68 of the Income Tax Act. The AO had added this amount to the assessee's income, citing a lack of substantiation from the assessee despite several opportunities provided. The assessee contended that the amount was received through banking channels and was regularly disclosed in the returns, thus not violating section 68. However, the Tribunal did not delve deeply into this issue as it had already decided that the reopening of the assessment itself was invalid. Therefore, the addition made by the AO under section 68 was also set aside.Conclusion:The Tribunal allowed the appeal of the assessee, setting aside the order of the CIT(A) and the assessment order passed by the AO. The Tribunal held that the reopening of the assessment was invalid as it was based on third-party information without independent application of mind by the AO. Consequently, the addition made under section 68 was also annulled. The appeal was pronounced in favor of the assessee on 28th June 2021.