2022 (10) TMI 1232 - AT - Income Tax

Reopening of assessment u/s 147 - allegation of reopening as bad in law - Violation of principle of natural justice - Addition u/s 68 - HELD THAT - On a perusal of case records, it is apparently evident that, on the basis of large financial transaction undertaken by the assessee and in the absence of ITR, the Ld. AO invoked the provisions of section 147 of the Act by service of notice u/s 148 dt 30/03/2015 and eventually culminated the assessment - FAA finding no force in the contention of the appellant dismissed the ground as reason for re-opening is the non-filing of the Return by the Appellant. It is only during the course of Assessment proceedings, that the Appellant/Director of the company had clearly state that, she had no knowledge of the company, its activities and the financials as they were handled by her Late husband and nobody attended the proceedings that the AO was compelled to complete the Assessment 144 of I.T. Act, 1961. The reply of the Director, was received by the Assessing officer by speed post on 9.03.2016. Thus, the contention of the Appellant has no legs to stand on, and is, therefore, unacceptable. Violation of principle of natural justice - As assessment order emanates that, the assessee was well informed the grievance for rebuttal through notices u/s 148, 142(1) and 144 of the Act and in response thereto the director/Appellant preferred a written submission, considering the same in the light of evidential material and keeping in mind that the assessee has failed to ITR till that date, the assessment proceedings were concluded. Whereas from the records it also apparent that, the Ld. FAA in an appellate proceedings before him granted a reasonable opportunity to the assessee company to support of its legal as well meritare grounds raised and considering the representation of Ld. AR put forth before him through written submission, the addition made u/s 68 of the Act was confirmed, thus ex-facie contention of the appellant fails, resultantly the ground number 2. Inapplicability of provisions of section 68 - Admittedly, neither during the assessment proceedings, nor in the course of appellate proceedings including the present one, the assessee company could adduce any evidential material to satisfactory establish the nature and sources of credits entered in the books of accounts, moreover the appellate failed to produce the books before the Ld. TAB to substantiate the exact sum of cash credit availed by it, consequently the claim of the appellant fails and the ground of the present appeal. Restricting addition to Peak Credit - The legal position in seeking the benefit of peak credit as explained in Bhaiyalal Shyam Behari 2005 (1) TMI 424 - ALLAHABAD HIGH COURT is that, the assessee has to make a clean breast of all the facts within its knowledge concerning the credit entries in the accounts, further has to explain with sufficient evidential detail the source of all the deposits as well as the corresponding destination of all payments therefrom the accounts, thus the assessee should be able to show that money has been transferred through banking channels from the bank account of creditors to the bank account of the Assessee, the identity of the creditors and that the money paid from the accounts of the assessee has returned to the bank accounts of the creditors in discharging the primary onus fastened u/s 68 of the Act, in the event of failure to do so, the application of peak credit theory calls out. We take note that there is no factual finding of either of the Ld. TAB that the assessee is the owner of the entire deposit made in the bank account so question of money belonging to the assessee does not arise and, therefore, applying peak credit fails, consequently prayer to restrict addition to peak credit deserves to be rejected, ergo we order accordingly. Levy of interest u/s 234B 234C is consequential and mandatory in nature and the Ld. AO has no discretion in the matter of charging of interest, and we find this proposition has been rightly upheld in the case of Anjum H Ghaswala 2001 (10) TMI 4 - SUPREME COURT therefore the claim of the appellant company being contralegem deserves to be rejected, ergo we uphold the action of the Ld. TAB in charging the said interest.

Summary

Issues Involved:
1. Reopening of assessment as bad in law.
2. Violation of principles of natural justice.
3. Inapplicability of provisions of Section 68.
4. Restriction of addition to "Peak Credit".
5. Levy of mandatory interest.

Detailed Analysis:

1. Reopening of assessment as bad in law:
The appellant challenged the legality of the reopening of assessment under Section 147 of the Income-tax Act, 1961. The Tribunal found that the reopening was based on the absence of the Income Tax Return (ITR) for the Assessment Year (AY) 2010-11 and large financial transactions undertaken by the assessee. The Commissioner of Income Tax (Appeals) [CIT(A)] had already addressed this issue, noting that the Director of the company had no knowledge of the company's activities as they were handled by her late husband. The Tribunal concurred with the CIT(A)'s findings, dismissing the appellant's contention as devoid of merit.

2. Violation of principles of natural justice:
The appellant claimed that the assessment was against the principles of natural justice. The Tribunal noted that the assessee was given multiple opportunities to present its case through notices under Sections 148, 142(1), and 144 of the Act. The Director of the company had submitted a written response, which was considered by the Assessing Officer (AO). The CIT(A) also provided ample opportunity for the assessee to support its claims. Thus, the Tribunal found no violation of natural justice principles and dismissed this ground.

3. Inapplicability of provisions of Section 68:
The appellant argued against the applicability of Section 68, which deals with unexplained cash credits. The Tribunal noted that the assessee failed to file its ITR and produce books of account. The AO, based on the bank statements obtained from the investigation wing, treated the entire bank credits as unexplained cash credits under Section 68. The CIT(A) confirmed this addition. The Tribunal observed that the assessee could not provide satisfactory evidence to explain the nature and source of the credits. Consequently, the Tribunal upheld the addition under Section 68 and dismissed this ground.

4. Restriction of addition to "Peak Credit":
The appellant requested that the addition under Section 68 be restricted to the "peak credit" amount rather than the total credits. The Tribunal noted that the appellant failed to produce any evidence or books of account to support this claim. The principle of "peak credit" requires the assessee to establish ownership of the funds and provide a detailed explanation of the transactions. The Tribunal found no factual basis to apply the peak credit theory and rejected the appellant's prayer to restrict the addition.

5. Levy of mandatory interest:
The appellant contested the levy of interest under Sections 234B and 234C. The Tribunal stated that the charging of interest is consequential and mandatory, with no discretion available to the AO. This position was upheld by the Supreme Court in "Anjum H Ghaswala" (252 ITR 1). Therefore, the Tribunal upheld the action of the tax authorities in charging the interest and dismissed this ground.

Conclusion:
The Tribunal dismissed the appeal of the appellant assessee, upholding the actions of the tax authorities on all grounds. The order was pronounced in the open court on October 10, 2022.