2019 (10) TMI 70 - AT - Income Tax

Reopening of assessment u/s 147 - validity of notice - Assessee as regards the reopening of assessment argued that the Joint Commissioner of Income Tax ( JCIT ) while giving satisfaction/approval to the reopening of the assessment has merely mentioned Yes unexplained credit under section 68 - HELD THAT - No Law as to how satisfaction have to be recorded by the JCIT. It is a Proforma provided by the Department which is correctly taken care by the JCIT. Issue is covered in favour of the assessee by the order of ITAT Delhi Bench in the case of Sunil Agarwal 2018 (7) TMI 231 - ITAT DELHI . Facts of this case are similar to the case of the assessee. Therefore, following the same decision, hold that initiation of reassessment proceedings under section 147 of the Income Tax Act, 1961, by the assessing officer and uphold by the CIT(A) is non-est in Law and without jurisdiction. Therefore, set aside the Orders of the authorities below and quash the reopening of the assessment. The appeal of assessee on this ground is allowed. Addition u/s 68 - The assessee did not have any business activity in the assessment year under appeal and no business income have been earned. It is, therefore, unbelievable that without setting-up a plant in previous year relevant to assessment year under appeal, the assessee would earn undisclosed income in the same year of establishment of manufacturing plant ? A manufacturing firm would take some time to earn profit after setting-up its plant. Though the assessee may not be able to prove the creditworthiness of the creditors, but, the creditors have confirmed giving loans to the assessee for setting-up of the manufacturing unit. Hence, it could be reasonably assumed that cash credit entries represented the capital receipts. though, the assessee is not able to establish the creditworthiness of the creditors. - Additions deleted.

Summary

Issues involved:
1. Initiation of reassessment proceedings under sections 147 and 148 of the Income Tax Act, 1961.
2. Addition of ?17,84,000/- under section 68 of the Income Tax Act.
3. Addition of ?87,115/- on account of bogus credit.

Issue-wise detailed analysis:

1. Initiation of reassessment proceedings under sections 147 and 148 of the Income Tax Act, 1961:
The assessee challenged the initiation of reassessment proceedings, arguing that the Joint Commissioner of Income Tax (JCIT) gave mechanical approval without proper satisfaction. The Tribunal referenced prior decisions, including Sunil Agarwal vs. ITO and CIT vs. NC Cables Ltd., which emphasized that mere mechanical approval does not constitute valid satisfaction. The Tribunal noted that the JCIT's approval, which merely stated "Yes, I am satisfied," was insufficient. Consequently, the Tribunal held that the initiation of reassessment proceedings was non-est in law and without jurisdiction, thereby quashing the reopening of the assessment.

2. Addition of ?17,84,000/- under section 68 of the Income Tax Act:
The assessing officer added ?17,84,000/- as unexplained credit under section 68, citing the assessee's failure to prove the creditworthiness of the lenders. The assessee contended that the loans were taken from relatives and friends for setting up a manufacturing plant and provided various documents, including PAN cards and some ITRs. The Tribunal observed that the assessee firm was newly established and engaged in setting up a manufacturing plant, with no business activity or income during the assessment year. It was deemed unreasonable to expect the firm to have undisclosed income in its first year. The Tribunal referenced the Supreme Court's decision in CIT vs. Bharti Engineering & Construction Company, which held that cash credits in the initial year of business could be assumed as capital receipts. Therefore, the Tribunal deleted the addition of ?17,84,000/-.

3. Addition of ?87,115/- on account of bogus credit:
The assessing officer added ?87,115/- as a bogus liability, noting that the creditor, M/s. Uttranchal Iron & Ispat Ltd., confirmed a NIL balance against the liability claimed by the assessee. The assessee did not provide any arguments or evidence to counter this finding. Consequently, the Tribunal upheld the addition, finding no reason to interfere with the assessing officer's decision.

Conclusion:
The Tribunal quashed the reassessment proceedings and deleted the addition of ?17,84,000/- under section 68. However, it upheld the addition of ?87,115/- on account of bogus credit. The appeal was partly allowed.