2020 (6) TMI 399 - AT - Income Tax

Validity of assessment u/s 147 - no addition is made in regards to reason for which assessment is reopened - Addition u/s 68 - HELD THAT - We find that original return was processed u/s 143(1) and the only requirement under law to initiate reassessment proceeding against the assessee was that Ld.AO had reasons to believe that certain income had escaped assessment. AO was clinched with specific information while forming such reasons which suggested possible escapement of income in the hands of the assessee. Nothing more, in our opinion, was required at that stage to reopen the assessee s case and formation of a prima-facie opinion was sufficient to trigger the reassessment proceedings. Not convinced with legal grounds / submissions made by Ld. AR, we dismiss the same and hold that reassessment proceedings were validly initiated against the assessee. Ground Nos. 1 to 2 as well as additional ground stands dismissed. So far as the merit of the case are concerned, we find that the onus to demonstrate the fulfilment of primary ingredients of Sec.68 was on assessee. This onus was to prove the identity of the investor entities, their respective creditworthiness and genuineness of the transactions. This onus was more in the factual matrix which led to trigger reassessment proceedings against the assessee. Upon perusal of documents on record, we find that the assessee had furnished Income Tax Acknowledgements of the investor entities, Board Resolutions passed by those entities to make investment in the assessee entity, copies of Share Application form, audited annual accounts and the bank statements of investor entities. There are no immediate cash deposits in the bank accounts of these entities before making investment in the assessee entity. The allotment was authorized by Board Resolution of the assessee and Return of Allotment in Form No.2 was filed with appropriate authorities. Upon perusal of these documents, it could be said that the assessee had discharged the primary onus of Sec.68 and it was incumbent on the part of Ld.AO to rebut assessee s claim. However, we find that no material has been brought on record to suggest that any cash got exchanged between the assessee and the investor entities and the assessee s unaccounted money was channelized in the books in the garb of share application. Mere non-appearance of directors alone could not support the impugned additions in the hands of the assessee. We delete the impugned additions u/s 68 - Decided in favour of assessee.

Summary

Issues:
Confirmation of addition of ?75 Lacs u/s 68 for AY 2007-08 by CIT(A) - Validity of assessment when no addition made for reason of reopening - Reopening of assessment beyond four years - Onus to prove identity, creditworthiness, and genuineness of transactions u/s 68 - Legal grounds raised by assessee - Merits of the case.

Analysis:

Confirmation of addition of ?75 Lacs u/s 68 for AY 2007-08 by CIT(A): The case involved the confirmation of an addition of ?75 Lacs u/s 68 for the assessment year 2007-08 by the CIT(A). The assessee challenged the validity of the assessment, arguing that no addition was made for the reason the assessment was reopened. The Tribunal examined the legal submissions and the merits of the case to reach a conclusion.

Validity of assessment when no addition made for reason of reopening: The assessee contended that the assessment was invalid as no addition was made for the reason the assessment was reopened. The Tribunal analyzed the reasons recorded by the AO to reopen the assessment and found that the quantum of income escapement had been explicitly mentioned. The Tribunal dismissed the legal grounds raised by the assessee, holding that the reassessment proceedings were validly initiated against the assessee.

Reopening of assessment beyond four years: The assessee raised an additional ground challenging the reopening of assessment beyond four years. The Tribunal admitted the ground as it was a legal ground and did not require appreciation of new facts. However, the Tribunal found that the quantum of escapement of income had been clearly stated by the AO, making the separate recording of that fact unnecessary.

Onus to prove identity, creditworthiness, and genuineness of transactions u/s 68: The Tribunal emphasized that the onus to prove the identity of the investor entities, their creditworthiness, and the genuineness of the transactions lay with the assessee. The Tribunal examined the documents provided by the assessee, including Income Tax Acknowledgements, Board Resolutions, and bank statements. It was noted that the assessee had discharged the primary onus of Sec. 68, and the AO failed to rebut the claim effectively. The Tribunal concluded that the impugned additions u/s 68 were deleted.

Legal grounds raised by assessee: The Tribunal considered and dismissed the legal grounds raised by the assessee, including arguments related to the quantum of escapement of income and the nature of investments made by the entities. The Tribunal found the reassessment proceedings valid and not liable to be quashed based on the reasons recorded by the AO.

Merits of the case: Upon analyzing the merit of the case, the Tribunal found that the assessee had fulfilled the primary onus of proving the identity, creditworthiness, and genuineness of the transactions. The Tribunal noted the lack of evidence suggesting cash exchanges between the assessee and the investor entities, leading to the deletion of the impugned additions u/s 68.

In conclusion, the appeal was partly allowed, with the Tribunal ruling in favor of the assessee on the grounds related to the merits of the case and the validity of the reassessment proceedings.