2018 (2) TMI 860 - AT - Income Tax

Reopening of assessment - Unexplained investment - guinity of credits - Held that - Observation of CIT(A) does not state that the sources are totally bogus and AO was in fact, asked to make further enquiries. Since no enquiries worth were made, the order of CIT(A) Bhubaneswar cannot be relied on, for denying the genuineness of the credits. Since so much time has lapsed and the affidavits furnished dt. 25-10-2007 have not been disproved, the contentions of assessee in this regard has merit. Revenue wrongly relied on the reports in the case of company and on the order of CIT(A), Bhubaneswar and has not made any enquiry in assessee case to disprove the credits claimed. Thus direct the AO to accept the credits as such, as genuine. In fact, the borrowals are only to the extent of ₹ 13.50 lakhs. Addition of ₹ 22.30 lakhs, being the entire investment in that company without examining the other sources is not correct and hence deleted. For reopening of assessment in view of the acceptance of issue of credits on merit, it is to be placed on record that the contentions on the issue have merit. First of all, assessee has disclosed the investment and enclosed the confirmations to the original return which was accepted. There was a direction by Addl. CIT, Range-12 to reopen the assessment. Another offer (whose jurisdiction is not examined) has issued the notices, even though assessee was assessed earlier. The reasons for reopening were not communicated violating the directions of Hon ble Supreme Court in the case of GKN Drive Shaft, 2002 (11) TMI 7 - SUPREME Court . The contentions extracted in assessee counsel s submissions and the case law relied, support the conclusion that the reopening itself is bad in law. - Decided in favour of assessee

Summary

Issues Involved:
1. Erroneous order of the Commissioner of Income Tax (Appeals).
2. Legality of the reopening of assessment under section 147.
3. Addition of ?22,30,000/- as unexplained investment.

Issue-wise Detailed Analysis:

1. Erroneous order of the Commissioner of Income Tax (Appeals):
The assessee contended that the order passed by the Commissioner of Income Tax (Appeals) [CIT(A)] was erroneous both on facts and in law. The CIT(A) confirmed the addition of ?22,30,000/- as unexplained investment without proper consideration of the facts and evidence provided by the assessee, including affidavits and confirmations from creditors.

2. Legality of the reopening of assessment under section 147:
The assessee argued that the reopening of the assessment under section 147 was bad in law. The original return filed on 27-11-1998 included disclosures and confirmations regarding the investment of ?22,30,000/- in M/s Sankhya Infotech Ltd. The return was initially processed under section 143(1) without scrutiny. The reopening was based on a report from the JCIT, Bhubaneswar, which suggested that the sources of investment were not genuine. However, the reasons for reopening were not communicated to the assessee, violating the principles laid down by the Hon'ble Supreme Court in GKN Drive Shaft [259 ITR 19] (SC). The tribunal noted that the reopening was based on "BORROWED SATISFACTION" and not on any tangible material or fresh evidence.

3. Addition of ?22,30,000/- as unexplained investment:
The assessee provided a detailed breakdown of the sources of the investment, including savings, sale of gold, and loans from friends. The tribunal found that no proper enquiries were conducted regarding the sale of gold, and the affidavits and confirmations provided by the assessee were not disproved. The tribunal also noted that the enquiries conducted in the case of other promoters could not be relied upon without providing the assessee an opportunity for cross-examination. The tribunal concluded that the addition of ?22,30,000/- without examining the other sources was not correct and directed the AO to accept the credits as genuine.

Conclusion:
The tribunal allowed the appeal, setting aside the orders of the AO and CIT(A). It directed the AO to accept the credits as genuine and concluded that the reopening of the assessment was bad in law. The tribunal emphasized the importance of proper communication of reasons for reopening and the necessity of conducting thorough enquiries before making additions. The appeal was allowed in favor of the assessee.