2016 (8) TMI 1201 - AT - Income Tax

Reopening of assessment - addition u/s. 69A - sale proceeds received through banking channels - Held that - Sufficiency of the information cannot be questioned but there is some basis for coming to a conclusion that transaction requires examination. But the details are available on record. Moreover the reopening is after four years from the end of the relevant assessment year as a scrutiny u/s. 143(3) was completed. AO has to record the failure on the part of assessee in furnishing fully and truly all material facts necessary for his assessment. No such finding was provided by the AO in the satisfaction recorded. Since proviso to Section 147 makes it mandatory thus reopening the assessment after four years from the end of the relevant assessment year without pointing out the failure on the part of assessee is bad in law The sale of shares was evident not only by the Bank s statement but also by debit to Demat account maintained by M/s. Karvy Share Broking Pvt. Ltd. Sale proceeds are received in normal course through Banking channel. So the receipt of money from the broker consequent to the sale cannot be held to be unexplained . There is no allegation that assessee has paid the consideration in cash and received in cheque in that mode. In the absence of any evidence to the contrary the sale proceeds cannot be taken as unexplained credits . With reference to the purchases the offmarket transactions cannot be doubted. At best AO could have doubted the purchase on that date since cash payments were made but cannot doubt the purchases as such and transfer to Demat account and sale there on. Therefore the sale proceeds cannot be brought to tax u/s. 69A. - Decided in favour of assessee.

Summary

Issues:
1. Validity of reopening assessment under Section 147 of the Income Tax Act.
2. Justification of addition made under Section 69A of the Income Tax Act.

Issue 1: Validity of Reopening Assessment under Section 147:
The appellant contested the reopening of assessment under Section 147, arguing that there was no fresh tangible material to justify it. The Assessing Officer (AO) had reopened the assessment based on information from the DCIT, Mumbai, regarding potential black money laundering through bogus share trading entries. The appellant objected to the reopening, stating that all relevant details had been verified during the previous scrutiny assessment. The appellant also questioned the lack of a live link to the statement provided and the absence of cross-examination of the individual whose statement triggered the reassessment. The appellant provided various evidence, including purchase bills, contract notes, cash receipts, and demat details, to support the genuineness of the transactions. The Commissioner of Income Tax (Appeals) upheld the reopening, citing information that led to the reassessment. However, the Tribunal found the reopening after four years without pointing out any failure on the appellant's part to be invalid in law, ultimately ruling in favor of the appellant on this issue.

Issue 2: Justification of Addition under Section 69A:
The AO treated the sale proceeds from the appellant's share transactions as 'unexplained money' under Section 69A. The appellant had purchased shares through a broker, sent them for dematerialization, and later sold them through a different entity, with the sale proceeds received through banking channels. The Tribunal noted that all these transactions had been previously verified and accepted during the initial scrutiny assessment. The Tribunal highlighted discrepancies in the statements provided by Shri Mukesh Choksi, the lack of full disclosure of his statements, and the absence of cross-examination. It was argued that the sale proceeds were not 'unexplained' as they were traceable through banking channels and supported by documentary evidence. The Tribunal concluded that the sale proceeds could not be considered 'unexplained money' under Section 69A, and therefore, the addition made by the AO was deemed unjustified. The Tribunal also emphasized the principle that off-market transactions, if disclosed, cannot be doubted without concrete evidence to the contrary, as upheld in previous case law.

In a detailed analysis, the Appellate Tribunal ITAT Hyderabad examined the validity of reopening the assessment under Section 147 and the justification of the addition made under Section 69A of the Income Tax Act. The Tribunal found the reopening of assessment after four years without establishing any failure on the appellant's part to be invalid. Additionally, the Tribunal ruled that the sale proceeds from the share transactions were not 'unexplained money' under Section 69A, as they were traceable through legitimate banking channels and supported by documentary evidence. The Tribunal's decision favored the appellant, ultimately allowing the appeal and setting aside the addition made by the AO.