2018 (1) TMI 1418 - AT - Income Tax

Validity of re-opening assessment - additions of unexplained cash credits u/s 68 - Held that - Assessing Officer s remand report has nowhere been able to prove the relevant entry of ₹ 1.25 lac alleged to have been availed from Shri Surendra Kumar Jain. AO has rather shifted negative burden on the assessee that it could not be proved that it had not taken any accommodation entry in this regard. As find that the same sufficiently tilts the case in assessee s favour as the Assessing Officer s reopening reasons itself does not survive in these facts and circumstances. Therefore hold that the Assessing Officer had not correctly assumed the re-opening jurisdiction in absence of any such entry between assessee and the said entry operator. The sole reopening reason is not sustainable in the eyes of law therefore. - Decided in favour of assessee.

Issues Involved:
1. Validity of re-opening of assessment.
2. Addition of unexplained cash credits amounting to ?1.25 lakh under Section 68 of the Income Tax Act.
3. Addition of unexplained share application money amounting to ?18 lakh.

Issue-wise Detailed Analysis:

1. Validity of Re-opening of Assessment:
The primary issue raised by the assessee was the legal validity of the re-opening of the assessment. The Assessing Officer (AO) initiated re-assessment proceedings based on a letter from the DIT(Inv)-II, New Delhi, indicating that the assessee had taken accommodation entries from Shri Surendra Kumar Jain amounting to ?1.25 lakh. The assessee contended that no details of the said entry were provided, and thus, the re-opening was not justified.

The CIT(A) upheld the re-opening, but the Tribunal found that the AO failed to prove the relevant entry of ?1.25 lakh from Shri Surendra Kumar Jain. Instead, the AO shifted the burden of proof onto the assessee, which was deemed inappropriate. The Tribunal concluded that the AO had not correctly assumed the re-opening jurisdiction in the absence of concrete evidence of such an entry. Therefore, the sole reason for re-opening was not sustainable in the eyes of the law.

2. Addition of Unexplained Cash Credits Amounting to ?1.25 Lakh:
The AO added ?1.25 lakh to the assessee's income under Section 68 of the Income Tax Act, treating it as an unexplained cash credit. The assessee argued that there was no such cash credit in its books, and any unrecorded transactions were assessed in the hands of another individual, Sri Anand Sharma.

The CIT(A) confirmed the addition, stating that the assessee failed to substantiate that it had not taken any accommodation entry from the Shri Surendra Kumar Jain group. However, the Tribunal found that the AO's remand report did not provide sufficient evidence to support the addition. The Tribunal held that the AO's assumption of re-opening jurisdiction was incorrect, thereby invalidating the addition of ?1.25 lakh under Section 68.

3. Addition of Unexplained Share Application Money Amounting to ?18 Lakh:
During the appellate proceedings, the CIT(A) enhanced the income by adding ?18 lakh as unexplained share application money, stating that the assessee failed to provide details or explain the source of the funds.

The Tribunal referred to the co-ordinate bench’s order in Sanju K Jalan vs. ITO ITA No.634/Kol/2017, which established that if the primary reason for re-opening is not sustained, any subsequent additions cannot be upheld. The Tribunal applied this reasoning mutatis mutandis, concluding that since the sole reason for re-opening did not survive, the addition of ?18 lakh share application money also had to be deleted.

Conclusion:
The Tribunal allowed the assessee’s appeal, holding that the re-opening of the assessment was invalid due to the lack of concrete evidence supporting the AO's reasons. Consequently, both the additions of ?1.25 lakh under Section 68 and ?18 lakh as unexplained share application money were deleted. The order was pronounced in open court on 04/01/2019.

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