2017 (8) TMI 370 - AT - Income Tax

Reopening of assessment - Addition u/s 68 - providing bogus entries - receipt of loan / advance - non charging of interest by the lender and cash deposit in the account of the lender immediately before the advancing the loan - Held that - Necessity of proving the case to the hilt,as required in criminal proceedings,is not required to determine the tax liability of an assessee. AO s are entitled to take notice of human behavior and surrounding circumstances and draw reasonable inferences in matters where the transactions entered in to by an assessee reveal that course of events of such a transaction is not as per the prevailing market practice or as per that particular business Considering the information received from Calcutta about Basant any prudent person will arrive at prima facie belief that the assessee had not disclosed its total income for the year under consideration.The reasons recorded by the AO clearly prove application of mind by him. Not only reasons were supplied to the assessee,the AO had also dealt with objections raised by it. There is no lacunae in the procedure followed by the AO. In this matter intimation was issued u/s.143(1)so,there is no question of formation of any opinion by the AO or change of opinion. The prima facie fact of income escaping assessment was there,so,in our opinion the FAA has rightly upheld the re-opening of the assessment.Juridictional issue raised by the assessee (GOA-1)is decided against it. FAA has given a categorical finding of fact that ₹ 15 lakhs(approximately)were deposited in the bank account of the lender before it issued cheques to the assessee.This fact cannot be brushed aside lightly especially when it is not brought on record that as to a how a Kolkata party agreed to advance loans to the assessee without help of any broker. It is not the case of the assessee that the creditor is also in the same line of business or that their business relationship is very old.Soundness of balance sheet of the lender only proves capacity of the lender but not the genuineness of the transaction. No authority is required to hold that bank transaction do not prove genuineness of the loans. No agreement was produced before the departmental authorities or us that could justify non charging of interest by the lender. There is prima facie evidence against the assessee which it had failed to rebut and being un-rebutted the departmental authorities have used the evidences against the assessees by holding that genuineness of the transaction was not proved. Assessee is trying to convert no proof in to good proof and here is an inherent weakness in the explanation filed by the assessee. So,we hold that the explanation offered by the assessee is unconvincing and deserves to be rejected - Decide against assessee.

Summary

Issues involved:
Challenge to the addition of ?15 lakhs in income due to loan from Basant Marketing Pvt. Ltd., genuineness of the transaction, re-opening of completed assessments, burden of proof on the Department, surrounding circumstances in tax matters, principles governing re-assessment provisions, application of section 68 of the Income-tax Act, 1961, and the role of the AO in determining the genuineness of transactions.

Analysis:

1. Addition of ?15 lakhs in income:
The AO added ?15 lakhs to the income of the assessee, invoking section 68 of the Act, due to a loan from Basant Marketing Pvt. Ltd. The assessee claimed the loan was genuine, but the AO found discrepancies in the transaction, including cash deposits in Basant's account before lending the loan. The FAA upheld the addition, considering Basant's involvement in paper transactions and the lack of business relationship with the assessee. The AR argued for the genuineness of the transaction, while the DR highlighted Basant's dubious activities. The Tribunal found the explanation offered by the assessee unconvincing, leading to the dismissal of the appeal.

2. Re-opening of completed assessments:
The Tribunal discussed the principles governing re-opening of assessments, emphasizing the need for a prima facie case to believe income had escaped assessment. The AO's reasons for re-opening the assessment were found to have a rational connection with the objective facts, and the Tribunal upheld the re-opening based on the information received about Basant. The Tribunal ruled against the assessee's jurisdictional issue, affirming the validity of the re-assessment.

3. Burden of proof and surrounding circumstances:
In tax matters, the burden lies on the Department to prove income falls within the taxing provisions. The Tribunal highlighted the importance of considering surrounding circumstances to determine the reality of transactions. It cited legal precedents to support the view that tax authorities can look beyond documents to ascertain the true nature of transactions. The Tribunal emphasized the need to prove the identity, creditworthiness of the lender, and the genuineness of transactions cumulatively under section 68 of the Act.

In conclusion, the Tribunal upheld the addition of ?15 lakhs to the income, affirmed the re-opening of assessments, and emphasized the significance of surrounding circumstances and burden of proof in tax matters. The Tribunal's decision was based on the failure of the assessee to provide a convincing explanation for the transaction, leading to the dismissal of the appeal.