2019 (4) TMI 2162 - AT - Income Tax

ITAT sets aside reassessment proceedings under section 147 due to invalid section 148 notice lacking independent application of mind

Omega Biotech Ltd. Versus ITO Ward-13 (4), New Delhi

Omega Biotech Ltd. Versus ITO Ward-13 (4), New Delhi - TMI Issues Involved:1. Validity of the reassessment order under Section 147 and notice issued under Section 148.2. Confirmation of the addition of Rs. 12,50,000 towards share capital received from five limited companies.3. The appellant's right to raise new grounds in the second round of litigation.Detailed Analysis:1. Validity of the reassessment order under Section 147 and notice issued under Section 148:The CIT (A) upheld the reassessment order passed under Section 147 and the notice issued under Section 148, stating that the notice was valid despite being based on information received from the Investigation Wing. The CIT (A) cited the Supreme Court's decision in the case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers (P.) Ltd, where it was held that the Assessing Officer (AO) needs only a 'reason to believe' that income has escaped assessment, which is a subjective satisfaction and does not require conclusive proof at the initiation stage. The CIT (A) concluded that the AO had sufficient reason to believe that income had escaped assessment, thus justifying the reassessment proceedings under Section 147.2. Confirmation of the addition of Rs. 12,50,000 towards share capital received from five limited companies:The AO confirmed the addition of Rs. 12,50,000 received towards share capital from five limited companies, as the assessee failed to satisfactorily explain the nature of the credit, the identity and creditworthiness of the creditors, and the genuineness of the transactions during the remand proceedings. The AO's decision was based on information from the Investigation Wing, which indicated that the assessee had received accommodation entries from certain parties. The CIT (A) supported the AO's findings, stating that the proceedings under Section 148 were in order and the addition was justified.3. The appellant's right to raise new grounds in the second round of litigation:The appellant argued that it was permissible to challenge the validity of the reassessment proceedings in the second round of litigation, even though it was not raised in the first round. The appellant relied on the decisions in Hemal Knitting Industries vs. ACIT and Investment Corp. Ltd. vs. CIT, which allowed raising jurisdictional challenges at any stage of the proceedings. The Tribunal agreed with the appellant, stating that the legal ground could be raised in the second round of litigation, as it goes to the root of the AO's jurisdiction to make the reassessment.Tribunal's Decision:The Tribunal found that the AO had not independently applied his mind before issuing the notice under Section 148 and had merely relied on the information from the Investigation Wing. Citing the Delhi High Court's decision in Dharamveer Singh Rao vs. ACIT and Sarthak Securities Co. Pvt. Ltd. vs. Income Tax Officer, the Tribunal held that the satisfaction based on borrowed satisfaction is not valid in the eyes of the law. The Tribunal concluded that the notice issued under Section 148 was not in accordance with the law, and the reassessment proceedings were set aside. Consequently, the Tribunal allowed the appeal on the first ground, rendering the other grounds academic and not requiring adjudication.Order:The appeal of the assessee was allowed, and the reassessment order passed by the AO was set aside. The order was pronounced in open court on April 12, 2019.