2020 (5) TMI 81 - AT - Income Tax

Validity of reopening u/s.147 - addition u/s.68 - HELD THAT - Here in this case based on specific information and material found during the course of investigation in the case of Shri S.K. Jain, the assessee was found to be beneficiary of accommodation entry and there was specific mention of cheque and details and the entity providing the entry along with date, which also commensurate with the entries in the assessee s books of account. Such an information and material prima facie goes to show that the transaction entered by the assessee was not genuine and thus, constitute tangible material for forming reason to believe that income chargeable to tax escape assessment. The reasoning as incorporated by CIT(A) is not only based on correct facts but also had correct appreciation of law and we do not find any reason to deviate from such a conclusion and absence of any rebuttal from the side of the assessee. Accordingly, the validity of reopening is upheld. Addition u/s 68 - AO has conducted his inquiry and issued summons and notices to the three entities. However, none of the parties responded on the notices sent came back unserved. When assessee was confronted with this fact and was asked to produce the Director/Principal Officer of the company who have given loan, the assessee could not comply with such a requisition by the Assessing Officer. Thus, genuineness of the transaction and the creditworthiness could not be established. As noted by the Ld. CIT(A) is that, before issuing the cheques in the form of loan to the assessee, exact amount of cash was found to be deposited in the bank account of these companies and these companies were managed and controlled by Shri S.K. Jain through dummy Directors which fact has emerged from the inquiry made by the Investigation Wing. In such a situation, the onus lies heavily upon the assessee to rebut and allay the doubts, which assessee has failed to do so. Therefore, the burden cast upon the assessee to prove the creditworthiness and genuineness of the transaction could not be proved. In absence of any contrary material, we do not find any reason to deviate from the finding recorded by the Ld. CIT(A) and same is confirmed. - Decided against assessee

Summary

Issues Involved:
1. Validity of Reopening under Section 147.
2. Addition of ?30 lakhs under Section 68.

Issue-wise Detailed Analysis:

1. Validity of Reopening under Section 147:
The assessee challenged the reopening of the assessment under Section 147, arguing that the reasons to believe were based on surmises and conjectures. The Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, stating that the reasons were based on findings of the Investigation Wing, which were duly recorded and communicated to the appellant. The CIT(A) held that the reasons to believe were formed after careful consideration and sound analysis of incriminating material in possession of the Assessing Officer (AO).

The assessee also contended that the AO did not apply his mind independently and merely acted on the Investigation Wing's report. The CIT(A) refuted this, stating that the information from the Investigation Wing was specific and authentic, and the AO was duty-bound to initiate reassessment proceedings. The process involved adequate application of mind by both the AO and higher authorities.

The appellant argued that the AO lacked jurisdiction due to a change in the company's name. The CIT(A) clarified that jurisdiction is determined by the assignment of PAN, and since the PAN was not migrated, the AO retained jurisdiction. The CIT(A) also noted that the appellant failed to communicate the name change for seven years, and the reassessment proceedings were initiated correctly.

The appellant claimed that the AO did not dispose of objections raised against the reasons for reopening. The CIT(A) observed that the objections were primarily requests for documents and adjournments, not substantive challenges to the reopening. The CIT(A) concluded that the reassessment proceedings were legally valid and upheld the reopening under Section 147.

2. Addition of ?30 lakhs under Section 68:
The assessee contested the addition of ?30 lakhs under Section 68, arguing that it had provided necessary documents to prove the identity, creditworthiness, and genuineness of the transactions. The AO, however, found that the details provided were insufficient and issued summons to the creditors, which went unserved or were not complied with.

The CIT(A) noted several key points:
- The transactions were discovered during a search on a third party, who admitted to providing accommodation entries.
- The creditor companies showed patterns of cash deposits followed by cheque issuance, indicating sham transactions.
- The creditor companies had no substantial business activity and were used for providing accommodation entries.
- The assessee failed to produce the creditors for verification and did not provide collateral or pay interest on the loans.

The CIT(A) concluded that the transactions were not genuine and upheld the addition under Section 68. The CIT(A) relied on the decision of the Hon'ble Jurisdictional High Court in CIT vs. MAF Academy, which supported the view that such transactions lose credibility when the entities involved are controlled by entry providers.

The Income Tax Appellate Tribunal (ITAT) agreed with the CIT(A)'s findings, emphasizing that the information from the Investigation Wing constituted tangible material for forming a reason to believe that income had escaped assessment. The ITAT noted that the assessee failed to rebut the doubts raised and could not establish the genuineness and creditworthiness of the transactions. The ITAT upheld the addition of ?30 lakhs under Section 68.

Conclusion:
The ITAT dismissed the assessee's appeal, upholding both the validity of the reopening under Section 147 and the addition of ?30 lakhs under Section 68. The judgment emphasized the importance of genuine transactions and the onus on the assessee to prove the creditworthiness and genuineness of entries in their books.