The Agra Bench of the Income Tax Appellate Tribunal ( ITAT ) in the case of M/s Deepraj Hospital (P.) Ltd. v. ITO held that the proceedings initiated under Section 147 of the Income Tax Act and the notice issued under Section 148 of the Income Tax Act are wrong, bad in law, arbitrary, without jurisdiction and against the facts and circumstances of the case.
The appeal before the present court is directed on the ground that the action of the Assessing Officer (AO) who challenged the validity of initiation of proceedings under Section 147 and the consequent issue of notice. Further on the ground that the Commissioner of Income Tax (CIT) had wrongly, illegally and arbitrarily confirmed the addition made by the AO u/s 68 of the Income Tax Act treating the receipt of share application money to be unexplained cash investment.
The assessee contended that he had obtained accommodation entries from Shri S Group as advance during the relevant financial year under consideration. Neither the AO ever provided with any documents nor confronted the assessee with any documents in possession of which it can be said to form a reason to believe by the AO that the assessee has taken accommodation entry from Shri S. Group. Furthermore, the assessee contended that the reason recorded on the ground of which the notice was issued is also wrong and bad in law as it is not the own belief of the AO but is solely based on the information received from CIT.
The Ld. CIT(A) remanded the matter to the AO asking for a remand report. The CIT(A) further cut the issue to whether the material in possession of the AO was sufficient to form a reason to believe and hold in favor of the revenue declared that the report of the Investigation Wing, is a good material for the AO to form a reason of escapement of income and the AO is not required to investigate the veracity of the facts narrated in the same.
The Hon’ble High Court held that where there is no independent application of mind by the AO to the tangible material which forms the basis of the reasons, the reasons are unsustainable. Furthermore, it remains undisputed in the present case that though the reasons recorded by the AO for belief of escapement of income contain reference to material forming the basis thereof, such material, despite written request by the assessee to the AO was never supplied by the AO to the assessee and hence the same is in contravention of the principles of natural justice.
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