2022 (5) TMI 1658 - AT - Income Tax

Reopening assessment under section 147 invalid when AO relies solely on Investigation Wing without independent application of mind

Uma Strips Ltd. Versus DCIT, Circle-27 (1), New Delhi

ITAT Delhi held that reopening of assessment under section 147 was invalid where AO relied solely on Investigation Wing observations without independent ... Reopening of assessment u/s 147 - reasons to believe - reliance on observations of the Investigation Wing - non independent application of mind by AO - HELD THAT:- As no live link presented by the AO between the material available with him i.e. the report of the investigation and to reason to belief that the assessee has tried to evade the assessment for the particular year in question. Simply stating and doubting that the assessee is involved in obtaining accommodation entries without providing proof, reason, information to back-up the claim cannot be considered as a valid reason to issue notice u/s 148 of the I.T. Act. There is no independent application of mind that could be deciphered from the reasons recorded. There is no reference to examination of the returns filed and whether the entries taken or on account of bogus capital, a balance sheet item or on account of bogus sales or purchases on account of revenue account. As per the record and the reasons recorded, no enquiries have been conducted by the Assessing Officer to come to a conclusion or reasons to belief with regard to evasion of tax which has escaped assessment. Placing reliance on the decisions of Meenakshi Overseas (P) Ltd. [2017 (5) TMI 1428 - DELHI HIGH COURT], G&G Pharma [2015 (10) TMI 754 - DELHI HIGH COURT], Sabh Infrastructure[2017 (9) TMI 1589 - DELHI HIGH COURT] and Pr. CIT Vs. RMC Potyvinyl (I) Ltd [2017 (7) TMI 371 - DELHI HIGH COURT] wherein the Delhi High Court has held that observations of the Investigation Wing should not be treated as conclusions without the AO independently verifying the same, in the absence of which the Hon’ble Court held that the reopening of assessment was bad in law. We hold that the proceedings u/s 148 are void ab initio and are liable to be quashed. Decided in favour of assessee. Issues:Assessment jurisdiction under section 147/148 of the Income Tax Act, 1961; Validity of addition made by the Assessing Officer; Alleged bogus purchases from M/s. Naman Exports; Cross-examination opportunity not provided by the Assessing Officer; Confirmation of addition without proper appreciation of facts; Alleged commission paid for arranging bogus purchases under section 69C of the Act.Analysis:The appeal was filed against the order of the ld. CIT(A)-9, New Delhi, challenging the addition made by the Assessing Officer. The grounds raised by the assessee included objections to the jurisdiction assumed under section 147/148 of the Act, confirmation of additions, and lack of opportunity for cross-examination. The assessee declared a total income of Rs.3,74,820/- in the return filed on 28.09.2010, leading to the issuance of notice for reopening the assessment. The reasons recorded for reopening highlighted the involvement of the assessee in an accommodation entry racket, specifically regarding alleged bogus purchases from M/s. Naman Exports.The Assessing Officer's satisfaction for reopening the assessment was questioned by the parties. The Tribunal analyzed the reasons recorded and found a lack of a live link between the material available and the belief of tax evasion by the assessee. It was noted that mere doubts and suspicions without substantial proof cannot justify reopening under section 148. Citing relevant case laws, the Tribunal emphasized the need for independent verification by the AO before concluding on allegations from investigation reports.Ultimately, the Tribunal held that the proceedings under section 148 were void ab initio and ordered the quashing of the assessment. The decision was based on the failure to establish a valid reason for reopening the assessment and the necessity for independent verification before taking action based on investigation reports. The appeal of the assessee was allowed, and the judgment was pronounced on 20/05/2022.