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I-T - Assumption of jurisdiction u/s 147 is void ab-initio if there is non-application of mind in recording reasons & there is lack of link between formation of belief by AO and tangible materials : ITAT

 

By TIOL News Service

NEW DELHI, NOV 28, 2018: THE ISSUE IS - Whether assumption of jurisdiction u/s 147 is void ab-initio if there is non-application of mind by the AO in recording reasons and there is lack of link between formation of belief by the AO and the tangible materials - YES IS THE VERDICT.

Facts of the case

The assessee company engaged in the business of trading of diamond jewellery, had filed its return of income for relevant AY. Subsequently, on the basis of information received from the Investigation Wind of the Income Tax Department that the assessee had received share application money/share premium amounting to Rs.6,00,00,000/- from different entry providing companies in financial year 2010-11, the AO reopened the assessment by issue of notice u/s 148 of the Act. During the assessment proceedings, the AO observed that 15 companies had invested in the share capital/share premium of assessee company. He noted that all the 15 companies were paper companies who had no business activities and were engaged in providing accommodation entry. The AO asked the assessee to explain that why the share capital and share premium received to the tune of Rs.6,00,00,000/- be not treated as unexplained cash credit within the meaning of section 68 of the Act. The assessee, submitted reply. However, the AO was not satisfied with the explanation given by the assessee and made addition of Rs. 6,00,00,000/- u/s 68 of the Act. On appeal, CIT(A) upheld the order of AO.

Tribunal held that,

++ Delhi High Court in the case of RMG Polyvinyl (I) Ltd following the above decision has held that where information was received from Investigation Wind that assessee was beneficiary of accommodation entries but not further enquiry was undertaken by the Assessing Officer, said information could not be said to be tangible material per se and, thus, reassessment on said basis was not justified;

++ since in the instant case none of the companies from whom the assessee company has received share capital/share premium are mentioned in the statement of Shri Rajesh Kumar Aggarwal, therefore, it is a clear case of no independent application of mind by the AO to the tangible material and the reasons failed to demonstrate live link between tangible material and formation of reasons to believe that income has escaped assessment. The satisfaction recorded by the AO is at best a reproduction of the conclusion of the investigation wing report and is a borrowed satisfaction. Since the reasons do not demonstrate the live link between the tangible material and formation of reasons to believe that income has escaped assessment, therefore, it was hold that the initiation of re-assessment proceedings by the Assessing Officer merely on the basis of information received from the Investigation Wing and without any independent application of mind is void ab-initio. Therefore, it was decided to set-aside the order of the CIT(A) and the grounds challenging the validity of the re-assessment proceedings were allowed. Since the assessee succeeds on the legal ground, the other grounds are not being adjudicated being academic in nature. In the result, the appeal filed by the assessee is allowed.

(See 2018-TIOL-2260-ITAT-DEL)


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