2022 (2) TMI 1297 - AT - Income Tax

Addition u/s 68 - shares application money received - HELD THAT - As the entire basis of allegation by the AO that the credit worthiness of the party i.e. share application money was not proved does not hold well in view of above discussion. As the assessee was able to establish the identity of the share applicant by furnishing PAN and company master data and proving the genuineness of transaction by adducing bank statements and also explained the sources of fund in the hands of the party, no addition is warranted. We do not find any reason to interfere in the finding of the learned CIT (A) and direct the AO to delete the addition made by him. Hence, the ground of appeal of the Revenue is dismissed. Reopening of assessment u/s 147 - Suspicion v/s reason to believe - Necessity of independent application of mind by AO - HELD THAT - The proceedings under section 147 of the Act can be initiated if the assessing officer has reasons to believe that any income chargeable to tax has escaped assessment for any assessment year. The law does not mandate that an Assessing Officer should act on the dictate of any other authority ipso facto for initiating the proceedings under section 148 of the Act. However, if it s done so by the AO, then it would tantamount to borrowed satisfaction which cannot be the basis for issue of notice u/s 148 of the Act. Thus, it is the satisfaction of the AO having jurisdiction over the assessee for initiating the proceedings under section 148 of the Act after application of mind on the information received from outside, indicating about the escapement of income. In this case, the information has been received from the Investigation Wing Ahmedabad that the assessee has received credit in the Bank account from M/s. Rachna Finlease Pvt. Ltd. - M/s.Rachna Finlease Pvt. Ltd. is a non-filer of return of Income Tax and the enquiry conducted by the Investigation wing has made it clear that the creditworthiness of M/s. Rachna Finlease Pvt. Ltd. is not proved. Therefore the credit of Rs. 18,42,50,000/- received by M/s. Ambe Tradecorp Pvt. Ltd., is unexplained cash credits. From the above, it is revealed that the proceedings under section 147 of the Act have been initiated on the information received from the investigation wing Ahmedabad that the assessee has received credit in the bank account from M/s Rachna Finlease private Ltd which is not filing income tax return. Whether the proceedings under section 147 of the Act can be initiated merely on the basis of the information received from the investigation wing ? - To our understanding, merely transaction carried out through banking channel cannot give reasons to form believe that amount involved in such transaction represent income of the assessee which has escaped assessment in the circumstances when the payer is not filing return of income. That information can trigger to be used to initiate the proceedings in the case of the M/s Rachna Finlease Private Ltd being non-filer of income tax return. On the contrary, the assessee has filed its return of income disclosing the transaction for receiving the amount from M/s Rachna Finlease Private Ltd in its books of accounts. Thus the mere information that certain amount received by assessee was not giving any rise to form believe that the income has escaped assessment. Furthermore, the AO has not carried out any investigation to reach to the prima facie conclusion that amount credited represent income which has escaped assessment. As such the AO, has reacted based on the information received from the investigation wing without the application of mind. We are of the opinion that proceedings under section 147 of the Act has been initiated by the AO without the application of mind and therefore the proceedings are void ab initio. Accordingly, we allow the technical ground raised by the assessee.

Summary

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act.
2. Validity of the assessment framed under Section 147 of the Income Tax Act.

Issue 1: Deletion of Addition under Section 68 of the Income Tax Act

Facts:
The assessee is a private limited company engaged in providing funds and finance facilities. A search and seizure action under Section 132 of the Income Tax Act was conducted in the case of Iscon group, which led to the discovery of the assessee's ledger in the books of M/s Rachna Finelease Pvt. Ltd. showing share application money received. The AO reopened the assessment under Section 147, proposing to treat Rs. 39,05,50,000/- as unexplained cash credit under Section 68.

Assessee's Argument:
The assessee provided ledger copies, bank statements, financial statements, and other documents to establish the genuineness of the transaction and the creditworthiness of the investor. It was argued that the entire transaction was through banking channels and duly recorded in audited books. The assessee also contended that if the investor's source of funds was unexplained, the addition should be made in the hands of the investor under Section 69, not in the hands of the assessee under Section 68.

AO's Argument:
The AO rejected the assessee's submissions, stating that M/s Rachna Finelease Pvt. Ltd. was not filing returns, thus its creditworthiness was not proved. The AO added Rs. 39,05,50,000/- to the assessee's total income as unexplained cash credit under Section 68.

CIT(A)'s Decision:
The CIT(A) deleted the addition, stating that the assessee had discharged its onus under Section 68 by providing sufficient documentary evidence to establish the identity and creditworthiness of M/s Rachna Finelease Pvt. Ltd. and the genuineness of the transaction. The CIT(A) noted that the ultimate source of funds was Smt. Hansaben Patel, who had sold land and used the proceeds for investment.

Tribunal's Analysis:
The Tribunal upheld the CIT(A)'s decision, noting that the assessee provided PAN, address, ledger confirmation, and bank statements proving the identity and creditworthiness of M/s Rachna Finelease Pvt. Ltd. The Tribunal also noted that the share application money was repaid in the subsequent year, thus supporting the genuineness of the transaction. The Tribunal concluded that the AO's finding was arbitrary and not based on cogent reasons.

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming that the assessee had satisfactorily established the identity, creditworthiness, and genuineness of the transaction, and thus no addition was warranted under Section 68.

Issue 2: Validity of the Assessment Framed under Section 147 of the Income Tax Act

Facts:
The assessee challenged the validity of the assessment framed under Section 147, arguing that the AO initiated proceedings based on information from the investigation wing without independent application of mind.

Assessee's Argument:
The assessee contended that the AO merely relied on the investigation wing's information without conducting an independent inquiry to form a belief that income had escaped assessment.

AO's Argument:
The AO argued that the proceedings were initiated after reviewing case records and obtaining prior approval from the appropriate authority. The AO maintained that at the stage of issuing notice under Section 148, only relevant materials were needed to form a reasonable belief.

CIT(A)'s Decision:
The CIT(A) upheld the AO's action, stating that the proceedings were initiated following due procedures and providing reasonable opportunities to the assessee.

Tribunal's Analysis:
The Tribunal found that the AO initiated proceedings based on borrowed satisfaction from the investigation wing's information without independent application of mind. The Tribunal emphasized that the AO must conduct an independent inquiry to form reasons to believe that income had escaped assessment. The Tribunal cited relevant case laws, concluding that the AO's action was based on suspicion rather than a reasoned belief.

Conclusion:
The Tribunal allowed the assessee's technical ground, declaring the proceedings under Section 147 void ab initio due to the AO's lack of independent application of mind. The Tribunal partly allowed the assessee's cross-objection and dismissed the Revenue's appeal.

Final Order:
The appeal filed by the Revenue is dismissed, and the cross-objection filed by the assessee is partly allowed.