2023 (5) TMI 315 - AT - Income Tax

Tribunal deems reassessment invalid due to reliance on unverified information

M/s. Amrit Brakewell Products Pvt Ltd Versus ITO, Ward-2 (3), New Delhi

M/s. Amrit Brakewell Products Pvt Ltd Versus ITO, Ward-2 (3), New Delhi - TMI Issues Involved:1. Validity of reopening of assessment under Section 147/148.2. Characterization of alleged accommodation entries.3. Addition of Rs. 25,00,000/- as unexplained credit under Section 68.4. Adequate opportunity of being heard to the assessee.Summary:1. Validity of Reopening of Assessment under Section 147/148:The assessee contested the reopening of the assessment, arguing that the Assessing Officer (AO) relied solely on information from the Investigation Wing without independent verification. The Tribunal noted that the AO simply reproduced the information and modus operandi provided by the Investigation Wing, failing to characterize the exact nature of the entries or independently verify the information. The Tribunal referenced the case of M/s. Savita Holdings Pvt. Ltd Vs. ITO, where it was held that reopening based on unverified information from the Investigation Wing is invalid. Consequently, the Tribunal quashed the reopening of the assessment, deeming it invalid and bad in law.2. Characterization of Alleged Accommodation Entries:The Tribunal observed that the AO did not characterize the nature of the alleged accommodation entries (whether loan, credit, or share application money) and merely stated that these entries represented undisclosed income. The AO's reasons for reopening the assessment were based on borrowed satisfaction from the Investigation Wing's report, without any independent exercise to ascertain the nature of the entries.3. Addition of Rs. 25,00,000/- as Unexplained Credit under Section 68:The Tribunal noted that the AO added Rs. 25,00,000/- as unexplained credit under Section 68, along with a commission of Rs. 43,750/-. However, since the reopening of the assessment itself was quashed, the Tribunal did not adjudicate on the merits of this addition.4. Adequate Opportunity of Being Heard to the Assessee:The assessee argued that the AO made the reassessment without affording adequate opportunity to rebut the material collected at the back of the assessee. The Tribunal found that the AO did not supply the material or provide the right of cross-examination to the assessee, further supporting the invalidity of the reassessment proceedings.Conclusion:The Tribunal set aside the orders of the authorities below and quashed the reopening of the assessment. As the legal ground was decided in favor of the assessee, other grounds on merit were not adjudicated. The appeal of the assessee was partly allowed.