2021 (8) TMI 58 - AT - Income Tax

Revenue's Appeal Dismissed: Assessing Officer's Errors Invalidate Section 147 Assessment

ACIT, Central Circle-30, New Delhi. Versus Rajni Sales (P) Ltd.

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order quashing the assessment made under Section 147 of the I.T. Act. The Tribunal ... Reopening of assessment u/s 147 - protective addition and unexplained expenditure on account of brokerage - HELD THAT:- Amount mentioned in the income escaping assessment is incorrect, because only ₹ 4.63 crore was invested in Prakash Industries Ltd. during the relevant assessment year, and therefore, entire addition could not have been made u/s. 68 in this year. Another intriguing point is that protective addition was made in the hands of the appellant vide order dated 31.03.2015 even before the substantive addition was made in the hands of Prakash Industries Ltd. in order passed on 31.03.2016. Neither at the time of recording the reasons, nor at the time of framing the assessment, AO was’nt sure about whose income has escaped assessment. We do not find any reason to interefere with the findings of the CIT (A) that reopening for resorting to make protective assessment cannot be upheld - AO has also not even verified the records that the alleged escapement of income of ₹ 8.32 crore was received in this assessment year or not. Thus, there is a fallacy in the reasons recorded itself, and therefore, we uphold the order of ld. CIT (A) in quashing the order passed by the Assessing Officer u/s.147. - Appeal of the Revenue is dismissed. Issues Involved:1. Deletion of addition made under Section 68 of the I.T. Act for unexplained cash credits.2. Deletion of addition for unexplained expenditure on account of brokerage.3. Validity of initiation of action under Section 147 of the I.T. Act.Issue-wise Detailed Analysis:1. Deletion of Addition Made Under Section 68 of the I.T. Act for Unexplained Cash Credits:The Revenue challenged the deletion of an addition of Rs. 8,73,24,240/- made under Section 68 on a protective basis. The Assessing Officer (A.O.) had reopened the case based on statements from individuals during a search operation, which suggested that the assessee had received accommodation entries from paper companies. The Commissioner of Income Tax (Appeals) [CIT(A)] quashed the assessment, noting that the A.O. relied solely on information from the investigation wing without independent application of mind. The CIT(A) observed that the A.O. had made a protective assessment, which is against the spirit of Section 147. The Tribunal upheld the CIT(A)'s decision, emphasizing that the A.O. was unsure about whose income had escaped assessment and had incorrectly calculated the amount of alleged escapement.2. Deletion of Addition for Unexplained Expenditure on Account of Brokerage:The Revenue also contested the deletion of an addition of Rs. 4,36,621/- for unexplained expenditure on brokerage. This addition was consequential to the main addition under Section 68. The CIT(A) and the Tribunal found that the brokerage addition was based on the same flawed reasoning as the cash credit addition. Since the main addition was quashed, the brokerage addition was also deemed invalid.3. Validity of Initiation of Action Under Section 147 of the I.T. Act:The CIT(A) held that the initiation of action under Section 147 was invalid and void ab initio. The A.O. had reopened the case based on statements and information from the investigation wing without verifying the records or applying independent judgment. The Tribunal noted that the A.O. had not established a clear reason to believe that income had escaped assessment. The reasons recorded were factually incorrect, and the A.O. had not verified whether the alleged escapement occurred in the relevant assessment year. The Tribunal upheld the CIT(A)'s decision, concluding that the reopening of the assessment was improper and invalid.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order quashing the assessment made under Section 147. The Tribunal found that the A.O. had not applied independent judgment, relied on incorrect information, and made a protective assessment without a substantive basis. The additions for unexplained cash credits and brokerage were deleted, and the initiation of action under Section 147 was deemed invalid.