2024 (1) TMI 608 - AT - Income Tax

AO fails to establish 'reasons to believe' under section 147, blindly relies on investigation reports without independent application of mind

The ITAT Delhi quashed the reopening of assessment under section 147, finding that the AO failed to establish 'reasons to believe' from mere 'reasons to ... Reopening of assessment u/s 147 - ‘reasons to suspect’ or ‘Reasons to believe’ - Addition u/s 68 - Share application money and Commission Charges unexplained - AO has relied the information received from the investigation Wing, where cases of the “beneficiaries” who had received accommodation entries from Pradeep Kumar Jindal (entry operator), were to be reopened - HELD THAT:- At the stage of recording reasons assessing officer had not shown any indulgence of his own. It appears that the assessing officer had blindfolded himself to rely the investigation Wing report and made the same foundation of recording the reasons for the reopening. The manner in which the reasons have been recorded make it appear that the assessing officer without actually applying his mind to the information made available by the investigation Wing proceeded to open the cases of all beneficiaries of alleged entries from Pradeep Kumar Jindal group of companies by recording reasons in same template/format and included assessee also as a beneficiary while assessee was a company of Pradeep Kumar Jindal and assessee is providing accommodation entries to the beneficiaries. In case in hand the issue was of accommodation entries from numerous companies of one operator and for that assessing officer, while recording reasons the ld. AO should have justified that he has traveled the distance between ‘reasons to suspect’ and ‘Reasons to believe’. Which he failed and CIT(A) has erroneously sustained the reasons to believe, by very general discussion holding that reason are based on specific information. The information as narrated in the reasons may have been specific qua Pradeep Kumar Jindal, but not as against the assessee. Decided against revenue. Issues Involved:1. Legality of reassessment proceedings initiated under Section 147/148 of the Income Tax Act.2. Validity of additions made under Section 68 for unexplained share application money.3. Validity of additions made on account of commission charges.Summary:1. Legality of Reassessment Proceedings:The Assessee challenged the initiation, continuation, and conclusion of reassessment proceedings on the grounds of non-application of mind and reliance on the investigation report without independent verification. The Tribunal noted that the Assessing Officer (AO) had merely relied on information from the Investigation Wing without concluding the nature of the alleged accommodation entry. The AO failed to specify if the amount of Rs. 1,14,00,000/- was part of the entries totaling Rs. 5,61,85,006/- from Pradeep Kumar Jindal's companies. The Tribunal found that the AO did not apply his mind independently and had recorded reasons in a template format, which was insufficient to justify the reopening. Consequently, the Tribunal sustained the challenge to the jurisdiction of reopening under Section 147/148 and quashed the assessment order.2. Validity of Additions under Section 68:The AO made additions amounting to Rs. 3,78,68,000/- on account of share application money under Section 68, based on the Investigation Wing's report. The CIT(A) upheld these additions, stating that the Assessee had taken accommodation entries and failed to discharge the onus of proving the genuineness and creditworthiness of the transactions. The Tribunal, however, did not delve into the merits of this issue as it rendered the other grounds academic after quashing the reassessment proceedings.3. Validity of Additions on Account of Commission Charges:The AO also added Rs. 7,57,360/- on account of commission charges for arranging accommodation entries. The CIT(A) confirmed this addition, linking it to the modus operandi of obtaining accommodation entries. Similar to the Section 68 additions, the Tribunal did not address this issue on merits due to the quashing of the reassessment proceedings.Conclusion:The Tribunal allowed the Assessee's appeal, quashing the reassessment order due to the AO's failure to independently apply his mind and the reliance on the Investigation Wing's report without sufficient basis. The other grounds raised by the Assessee were rendered academic and left open.