2016 (6) TMI 974 - AT - Income Tax

Reopening of assessment - investment from unexplained sources u/s. 69B - genuity of loan - Held that - The reason and purpose for transferring the loan receivable from assessee to Sanson Developers Properties by the lender San Finance Corporation as on 31-03-2006 is very important to come to conclusion and adjudicate this appeal to understand the entire factual matrix and pith and substance of the nature and substance of entire loan transaction which the assessee has not clarified. The assessee has merely stated that the loans are outstanding in the books of lender M/s San Finance Corporation while the fact of the matter is that the said San Finance Corporation by passing journal entry on 31-03-2006 has removed/erased the loan outstanding of ₹ 16,50,650/-- due from the assessee from its books of account and the amount of ₹ 16,50,650/- stood transferred to being receivable from Sanson Developers Properties as on 31- 03-2006 and the receivable from assessee in books of San Finance Corporation was reduced to Nil as on 31-03-2006. It is almost after one year on 31-03-2007, the said amount of ₹ 16,50,650/- was transferred back to the debit of the assessee as being receivable by said San Finance Corporation by passing a journal entry on 31-03-2007 of the amount of ₹ 16,50,650/-. No clarification and explanation has been given by the assessee with respect to above entries. Revenue also has not made any enquiry and examination to understand the reason and purpose of transferring the entry by San Finance Corporation by debiting to the account of Sanson Developers Properties as on 31-03-2006 with ₹ 16,50,650/- and removing the name of the assessee as borrower of the said loans from San Finance Corporation from its books of accounts as on 31-03-2006 and bringing the loan receivable from assessee to Nil as on 31-03-2006 , before fastening liability on the assessee. Thus, in the interest of justice, this matter need to be set aside to file of the AO for de-novo enquiries and examination to bring on record the pith and substance of the nature of entire loan transactions undertaken by the assessee with the said San Finance Corporation to evaluate its genuineness. For reopening , it cannot be held that the A.O. has formed any opinion with respect to the investment made by the assessee in the flat in the Adarsh Co-operative Housing Society Limited. Information has been received by the Revenue that the assessee has invested an amount of ₹ 66,08,512/- and based upon that the Revenue has reopened the case and the notices has been issued within four years from the end of the assessment year by issuing notice u/s 148 and 142(1) of the Act dated 21st July, 2011 and since the Revenue has received cogent tangible material having live link/nexus with the reasons to believe that the income has escaped assessment , the return of income was originally processed and accepted u/s 143(1) and not u/s 143(3) r.w.s. 143(2) of the Act and the Revenue has re-opened the assessment within four years of the end of the assessment year, we hold that the Revenue has rightly invoked the provisions of section 147/148 of the Act and we uphold the reopening of the assessment. Decided partly in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Validity of reopening the assessment.
2. Addition of ?15,65,000/- as unexplained investment.
3. Genuineness of the loan transaction from San Finance Corporation.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment:
The assessee filed his return of income on 20th June 2007, which was processed under section 143(1) of the Income Tax Act, 1961, on 6th July 2007. The case was reopened under section 147 of the Act after recording the reasons and obtaining prior approval from the CIT on 20th July 2011. Statutory notices under sections 148 and 142(1) dated 21st July 2011 were issued and duly served on the assessee. The Tribunal upheld the reopening of the assessment, noting that the original return was processed under section 143(1) and not under section 143(3), and the reopening was within four years from the end of the assessment year. The Revenue had received tangible material indicating that the income had escaped assessment, thus justifying the reopening under sections 147/148 of the Act.

2. Addition of ?15,65,000/- as Unexplained Investment:
During the reassessment proceedings, the AO observed that the assessee had invested ?66,08,512/- in a flat at Adarsh Co-operative Housing Society Ltd., but only ?50,000/- was disclosed in the balance sheet. The AO added ?15,65,000/- to the total income of the assessee under section 69B of the Act, as the assessee failed to provide satisfactory evidence for the source of this investment. The assessee claimed that the amount was borrowed from San Finance Corporation, Nagpur, which directly paid the amount to the housing society. However, the AO found inconsistencies, such as the absence of a structured loan agreement, no collateral security, and no interest charged by the lender. The CIT(A) confirmed the addition, stating that the genuineness of the loan transaction was not satisfactorily proved, and the loan appeared to be bogus.

3. Genuineness of the Loan Transaction from San Finance Corporation:
The assessee submitted various documents, including loan confirmation letters, ledger extracts, and bank statements, to substantiate the loan from San Finance Corporation. The AO issued a notice under section 133(6) to San Finance Corporation, which confirmed the loan transactions. Despite this, the AO and CIT(A) doubted the genuineness of the transaction due to the lack of a formal loan agreement, absence of interest charges, and no collateral security. The Tribunal observed unusual entries in the ledger extracts, such as the transfer of loan receivable to another account and its subsequent reversal, which were not adequately explained. The Tribunal set aside the matter to the AO for a de-novo enquiry to understand the nature and substance of the loan transactions and to evaluate their genuineness. The assessee was directed to cooperate with the Revenue and provide necessary evidence to support the genuineness of the loan transaction.

Conclusion:
The Tribunal upheld the reopening of the assessment under sections 147/148 but set aside the addition of ?15,65,000/- for a de-novo enquiry by the AO to ascertain the genuineness of the loan transaction from San Finance Corporation. The appeal was partly allowed for statistical purposes.