2016 (9) TMI 1374 - AT - Income Tax

Reopening of assessment - addition u/s 68 - claim of the assessee of short term capital gain - Held that - At the original assessment stage, assessee declared short term capital gain and the Assessing Officer after raising specific query in this regard and considering facts and material on record, accepted the claim of the assessee of short term capital gain under section 143(3) dated 06.05.2008. There is no failure on the part of the assessee to disclose truly and correctly the material facts necessary for assessment, therefore, it is a case of mere change of opinion for initiating re-assessment proceedings. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of re-assessment proceedings under section 147/148 of the Income Tax Act.
2. Confirmation of additions under section 68 of the Income Tax Act as undisclosed income.

Detailed Analysis:

1. Validity of Re-assessment Proceedings under Section 147/148:
The primary issue in the appeals was the validity of the re-assessment proceedings initiated by the Assessing Officer (AO) under sections 147/148 of the Income Tax Act. The AO had initiated re-assessment based on information received that the assessees had obtained accommodation entries from M/s. Maha Sagar group of cases. The AO believed that the income of ?25,19,697/- had escaped assessment due to these accommodation entries.

The Tribunal noted that the assessee had originally filed a return of income declaring short-term capital gains, which was accepted by the AO after thorough verification during the original assessment proceedings. The AO had raised specific queries regarding the short-term capital gains, and the assessee had provided all necessary documentary evidence, including D-MAT accounts, contract notes, and bank statements.

The Tribunal found that the reasons recorded for re-opening the assessment were factually incorrect. The AO had not provided any tangible material to justify the re-opening. The Tribunal emphasized that a valid re-opening must be based on tangible material indicating escapement of income. The AO had not recorded any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

The Tribunal cited several judicial precedents, including the decisions of the Delhi High Court in the case of Signature Hotels Pvt. Ltd. and the Supreme Court in the case of Kelvinator of India, to support its conclusion that the re-opening of the assessment was based on a mere change of opinion, which is not permissible under the law. Consequently, the Tribunal quashed the re-assessment proceedings, declaring them invalid.

2. Confirmation of Additions under Section 68 as Undisclosed Income:
The second issue was the confirmation of additions under section 68 of the Income Tax Act, treating the short-term capital gains as undisclosed income. The AO had concluded that the assessee had introduced a sum of ?44,75,142/- as accommodation entries representing undisclosed income.

During the appellate proceedings, the assessee argued that all transactions were genuine and conducted through banking channels and D-MAT accounts. The assessee provided evidence such as contract notes, D-MAT account statements, and bank statements to substantiate the genuineness of the transactions. The CIT (Appeals) partially accepted the assessee's explanation, deleting the addition to the extent of ?19,55,480/- but confirming the addition of ?25,19,697/- as undisclosed income.

The Tribunal, after considering the submissions and evidence, concluded that the AO had recorded incorrect facts in the reasons for re-opening the assessment. The Tribunal noted that the assessee had not received any accommodation entries from M/s. Maha Sagar group of cases and that the transactions were genuine. The Tribunal held that there was no material available with the AO to justify the conclusion that there was escapement of income. Therefore, the addition of ?25,19,697/- was deleted.

Conclusion:
The Tribunal allowed the appeals of the assessees, quashing the re-assessment proceedings and deleting the additions made under section 68 of the Income Tax Act. The Tribunal emphasized that re-assessment based on a mere change of opinion is not permissible and must be based on tangible material indicating escapement of income. The decision underscores the importance of proper application of mind by the AO before initiating re-assessment proceedings.