PV Corporate Advisory Services vs. Income Tax Officer - (Income Tax Appellate Tribunal) (07 Jul 2021)

Reopening on the basis of the report of Investigation Wing without independent application of mind by AO is not valid

MANU/ID/0488/2021

Direct Taxation

In present case, the assessee is a company and had filed its return of income on 30th September, 2011 declaring a loss of Rs.3,91,500. The return was processed under Section 143(1) of the Income Tax Act, 1961 (IT Act) accepting the return of income.

During the course of assessment proceedings, the Assessing Officer (AO) asked the assessee to explain the accommodation entry of Rs.3 lakh from the said concerns. Rejecting the various explanations given by the assessee and observing that, the assessee has obtained accommodation entry of Rs.3 lakh from a non-genuine firm/concern, AO made addition of Rs.3 lakh to the total income of the assessee. Similarly, the AO also made addition of Rs.5,400 to the total income of the assessee being the alleged commission @ 1.8% of such accommodation entry. Thus, the AO determined the total income of the assessee at Rs.3,05,400.

Before the CIT(A), the assessee challenged the validity of the reassessment proceedings as well as the addition on merit. However, the learned CIT(A) was not satisfied with the arguments advanced by the assessee and dismissed the appeal filed by the assessee on both the issues, i.e., validity of the reassessment proceedings as well as the addition on merit.

A perusal of the reasons for reopening of the case for the impugned assessment year, shows that the reopening was made on the basis of the report of the Investigation Wing and there is no independent application of mind by the AO for the reopening. The Hon'ble High Court in a number of cases have held that, the reopening on the basis of the report of the Investigation Wing without independent application of mind by the AO is not valid. Accordingly, the reassessment proceedings which were based on the report of the Investigation Wing and without independent application of mind by the AO have been held to be illegal.

Since the AO, in the instant case, has reopened the assessment on the basis of report of the Investigation Wing and there appears to be no independent application of mind by the AO for reopening of the case, therefore, the reassessment proceedings initiated by the AO in the instant case is not proper. The reassessment proceedings initiated by the AO are illegal and accordingly subsequent proceedings also become illegal and void. The appeal filed by the assessee is allowed.

Tags : ASSESSMENT RE-OPENING VALIDITY