2023 (8) TMI 1505 - AT - Income Tax

AO's reassessment under Section 147/148 quashed for lack of valid jurisdiction and inadequate reasons to believe

Bhaijee Commodities Pvt. Ltd. Versus ACIT Circle-4 (2) New Delhi. And DCIT Central Circle-8 New Delhi Versus Bhaijee Commodities Pvt. Ltd.

The ITAT Delhi quashed the reassessment proceedings initiated under Section 147/148 for lack of valid jurisdiction. The tribunal held that the AO's ... Validity of reopening of assessment - reasons to believe - lack of jurisdiction available u/s 147 - Addition u/s 68 for share capital received - Validity of approval granted u/s 151 - HELD THAT:- Reasons recorded are the manifestation of mind of AO. It is the tool for judging the validity of order under challenge. It gives opportunity to the appellate forums and Courts to objectively see whether or not the AO has proceeded on the relevant material and evidence while invoking drastic provisions of S. 147. Expression ‘Reason to believe’ is the most salutary safeguard to prevent arbitrary exercise of power and source of jurisdiction arises to belief towards escapement of chargeable income on the basis of reasons i. e. relevant material. The ‘information’ received per se cannot be regarded as ‘belief’. It can possibly give birth to requisite belief. Thus, it was incumbent upon Assessing Officer to test the material himself and apply his own mind to the material, if any, which has given rise to alleged information from DIT(Inv.). AO is duty bound to test the alleged information himself in the light of relevant material and weigh the credibility of information and consequently disclose his ‘process of reasoning’ to arrive at the ‘reason to belief’ contemplated under S. 147. On appraisal of the reasons recorded under Section 148(2) and approval thereon under Section 151 of the Act and in the light of contentions raised on behalf of the assessee, it is noticed that the case has been reopened on the last date of the limitation period for two reasons, namely, accommodation entry in the form of share capital recieved and allegation of undisclosed fictitious profit derived from transactions on NMCE platform. AO has proceeded under Section 147 r.w. Section 148 of the Act on the basis of information received from DDIT (Inv.) New Delhi and DDIT (Inv.) Kolkata. The DDIT (Inv.) New Delhi has alleged the assessee company to be beneficiary of accommodation entry in form of share capital from Shalini Holdings Pvt. Ltd. whereas the DDIT (Inv.) Kolkata has alleged misuse of NMCE platform which has resulted in fictitious profits received by the assessee. On perusal of the reports of the Investigation Wing as placed on record, we find merit in the plea canvassed on behalf of the assessee that the allegation against the assessee towards accommodation entries are bald and generic and without any specific material in support. No material has been referred in the note of the Investigation Wing which may possibly implicate the subscription receipts by the assessee in any objective manner. The report primarily revolves around the modus operandi of S K Jain Group. Likewise, the allegation of fictitious profits is qua other entity. The so called ‘belief’ formed by the AO towards escapement of chargeable income is thus without the availability of relevant or tangible material and merely follows the opinion expressed by the investigation wing. The reasons assigned by the Assessing Officer towards escapement is dehors any tangible material which may give rise to a prima facie belief to attack the propriety of the share subscription. Also the allegation of fictitious profits is also bald one and premised in incorrect recording of facts. The particulars of transaction giving rise to alleged unaccounted fictitious profits is not made available at any stage of the proceedings beginning with issuance of notice under Section 148 till the matter is traveled to the Tribunal. No instance of unreported profits has been identified even in the assessment as well. The onus has been wrongly shifted on the assessee without providing the details/particulars of transactions in commodity exchange towards alleged fictitious profits. The formation of ‘reason to believe’ is thus clearly extraneous to any material relevant for formation of prima facie belief. No live link or direct nexus between the so called information and the belief is found. Noticeably, the objection of the Assessee has also been disposed in a summary manner disregarding the points raised by the assessee. The order disposing objections does not utter a single word on the nature of material available or transaction carried at NMCE platform. The assessee thus has sufficiently demonstrated that neither there is any relevant material to make wide ranging allegations towards accommodation entry and earning fictitious profits nor the reasons recorded spells out the exact particulars of transactions giving birth to such allegations. No culpability can be inferred at the stage of reopening notice based on quality of information gathered against the assessee. The Pr. CIT has granted approval without observing the inconsistency and glaring inadequacy in the approval memo placed before him wherein the scope of reopening was curtailed to mere case of alleged ‘escapement’ qua Explanation- 2 disregarding other overwhelming conditions of the main provision thereof. Pr.CIT weighed and endorsed the action of reopening u/s 151 apparently without any application of mind to such deficiencies in approval memo. The reasons so recorded, thus has no leg to stand in the eyes of law when tested at the counters of prerequisites of Sections 147 and 151 of the Act. We thus find overwhelming potency in the plea of the assessee that reasons recorded and approval granted thereon under Section 151 do not meet the requirement of law at all and thus the issuance of notice under Section 148 based on cryptic and nondescript reasons combined with a mechanical approval of the Pr.CIT that too on a narrow compass under Section 151 is not permissible in law. We thus have no hesitation to hold that the notice issued under Section 148 is thus without jurisdiction and consequently reassessment framed for AY 2010-11 is bad in law and hence quashed. Decided in favour of assessee. Issues Involved:1. Validity of notice under Section 148 and reassessment proceedings under Section 147.2. Addition of Rs. 50,00,000/- under Section 68 for share capital received from M/s. Shalini Holding P. Ltd.3. Addition of Rs. 2,35,49,859/- for profit earned from transactions on NMCE platform.4. Addition of Rs. 14,12,991/- for unexplained expenditure related to commission on NMCE transactions.5. Jurisdictional issue regarding the initiation of proceedings under Section 147 instead of Section 153C.Detailed Analysis:1. Validity of Notice under Section 148 and Reassessment Proceedings under Section 147:The assessee challenged the validity of the notice under Section 148 and the reassessment proceedings under Section 147, arguing that the notice was issued without recording proper reasons and requisite approval under Section 151. The reasons for reopening were based solely on information from the investigation wing, without independent application of mind, making the reopening a case of borrowed satisfaction. The assessee contended that the information was not tangible material but merely suspicion, rendering the notice illegal and without jurisdiction. The Tribunal found merit in these arguments, noting that the reasons recorded were vague, lacked specific material, and were based on generalized information. The approval granted under Section 151 was also found to be mechanical and without application of mind. Consequently, the Tribunal held that the notice under Section 148 and the reassessment proceedings were without jurisdiction and quashed them.2. Addition of Rs. 50,00,000/- under Section 68 for Share Capital Received from M/s. Shalini Holding P. Ltd.:The assessee contested the addition of Rs. 50,00,000/- under Section 68, arguing that the transaction was supported by documentary evidence and the identity and genuineness of the party were not in dispute. The CIT(A) had confirmed the addition, considering M/s. Shalini Holding P. Ltd. a shell company providing accommodation entries. However, the Tribunal noted that the assessee had provided sufficient evidence, including bank statements, ITR, and balance sheets, confirming the transaction. The Tribunal found that the addition was based on mere suspicion without tangible material and thus not sustainable under the law.3. Addition of Rs. 2,35,49,859/- for Profit Earned from Transactions on NMCE Platform:The assessee argued that the profit from transactions on the NMCE platform was duly accounted for and corroborated by audited accounts. The CIT(A) had upheld the addition, alleging that the profits were fictitious and based on information from the investigation wing. The Tribunal found that the allegation of fictitious profits was unsubstantiated and whimsical, as the transactions were recorded in the books and the profits were disclosed. The Tribunal noted that the AO had not provided transaction-wise details of the alleged fictitious profits, and the reasons recorded were factually incorrect. Thus, the addition was held to be without basis and quashed.4. Addition of Rs. 14,12,991/- for Unexplained Expenditure Related to Commission on NMCE Transactions:The assessee contended that the addition of Rs. 14,12,991/- for unexplained expenditure on commission was arbitrary and based on surmises. The CIT(A) had confirmed the addition. The Tribunal found that the addition was based on the same unsubstantiated allegations of fictitious profits and lacked any tangible material. Consequently, the addition was held to be illegal and arbitrary, and quashed.5. Jurisdictional Issue Regarding the Initiation of Proceedings under Section 147 Instead of Section 153C:The assessee raised an additional ground, arguing that the initiation of proceedings under Section 147 was illegal as the action should have been taken under Section 153C, given that the information was found at the premises of a third party. The Tribunal agreed, noting that the entire basis for reopening was information from the investigation wing, which should have triggered proceedings under Section 153C. The Tribunal cited several judgments supporting this view and held that the proceedings under Section 147 were void ab initio and bad in law.Conclusion:The Tribunal quashed the notice under Section 148 and the reassessment proceedings under Section 147, holding them to be without jurisdiction. The additions of Rs. 50,00,000/- under Section 68, Rs. 2,35,49,859/- for profit from NMCE transactions, and Rs. 14,12,991/- for unexplained expenditure were also quashed as they were based on unsubstantiated allegations and lacked tangible material. The Tribunal allowed the assessee's appeal and dismissed the revenue's appeal.