2020 (6) TMI 469 - AT - Income Tax

Reopening of assessment - reopening stating that four years have elapsed - reopening on the basis of a report / information made available by Income Tax Investigation Wing, Kolkata - addition u/s 68 as unexplained cash credit - HELD THAT - The settled position of law is that if an assessment for any year has been completed u/s 143(3) or u/s 147, then no action shall be taken u/s 147 after the expiry of 4 years from the end of relevant assessment year unless income chargeable tax has escaped assessment by reason of the failure on the part of the assessee. That is, there is no allegation that the assessee has failed to disclose fully and truly, all material facts necessary for assessment. As we noted that the re-opening is beyond a period of four years and the original assessment was completed u/s 143(3) of the Act and in the light of the decision of Amiya Sales and Industries 2004 (9) TMI 32 - CALCUTTA HIGH COURT the reopening of assessment is bad in law. We note that there is change in opinion as the assessee has disclosed all the material facts in its return of income, wherein, balance sheet along with annexures, bills vouchers, invoices were filed and the Assessing Officer had considered the same while completing the original assessment u/s 143(3) of the Act dated 28.12.2011. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period, as explained above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. - Decided in favour of assessee. Set off of derivative loss against the addition made on account of unexplained cash credit - HELD THAT - The entire amount has been credited in the books of the assessee. Therefore, it can be implied that these receipts are in the nature of business receipts. This view is supported by the decision of Hon ble Supreme Court in the case of Lakhmichand Baijnath vs. CIT 1958 (11) TMI 3 - SUPREME COURT where sums found credited in the books of the assessee were treated as business profits. No infirmity in the order passed by the CIT(A).That being so, we decline to interfere with the order of Id. C.I T.(A) in directing the AO to allow set -off of derivative loss against the addition made u/s 68.The ld CIT(A) s order on this issue is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.

Issues Involved:
1. Validity of the reopening of assessment under sections 147 and 148 of the Income Tax Act.
2. Treatment of unexplained cash credit under section 68 of the Income Tax Act.
3. Allowability of set-off of derivative loss against unexplained cash credit.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of Assessment under Sections 147 and 148:
The primary grievance of the assessee was the reopening of the assessment under sections 147 and 148. The assessee argued that the reopening was beyond the permissible period of four years and was based on a change of opinion, as all material facts had been fully and truly disclosed during the original assessment. The assessee had initially filed a return showing a loss, which was processed and later scrutinized, leading to an assessment under section 143(3). Subsequently, the case was reopened based on information from the Income Tax Investigation Wing, which alleged that the assessee had introduced unaccounted money through accommodation entries.

The Tribunal noted that there was no allegation that the assessee failed to disclose all material facts fully and truly. The reopening was beyond four years, and the original assessment was completed under section 143(3). The Tribunal referred to the decision in Amiya Sales and Industries vs. ACIT, which held that reopening beyond four years without any failure on the part of the assessee to disclose material facts is invalid. The Tribunal concluded that the reopening was based on a change of opinion and quashed the reassessment.

2. Treatment of Unexplained Cash Credit under Section 68:
The Assessing Officer (AO) had added ?14,85,00,000 as unexplained cash credit under section 68, treating it as undisclosed income. The assessee contended that this amount represented genuine sale proceeds of shares. The AO, however, held that the transactions were bogus, as the alleged purchaser denied any real business activities and admitted to providing accommodation entries.

The Tribunal, while addressing the reopening issue, did not delve into the merits of the addition under section 68 due to the quashing of the reassessment. However, the CIT(A) had observed that the amount received was credited in the assessee's books, implying it was in the nature of business receipts. This view was supported by precedents where sums credited in the books were treated as business profits.

3. Allowability of Set-off of Derivative Loss Against Unexplained Cash Credit:
The revenue's appeal challenged the CIT(A)'s direction to allow the set-off of derivative loss against the addition made under section 68. The AO had disallowed this set-off, arguing that unexplained cash credit does not fall under any head of income as per section 14 and thus cannot be set off against business losses.

The CIT(A) allowed the set-off, noting that the derivative loss was claimed as a business loss and upheld by higher appellate authorities. The CIT(A) further observed that the receipts were credited in the books, implying they were business receipts, and referred to judicial precedents supporting this view. The Tribunal upheld the CIT(A)'s decision, noting no infirmity in allowing the set-off of derivative loss against the unexplained cash credit.

Conclusion:
The Tribunal quashed the reassessment proceedings under section 147 due to the invalidity of reopening beyond four years without any failure on the part of the assessee to disclose material facts. Consequently, the appeal of the assessee was allowed, and the revenue's appeal challenging the set-off of derivative loss was dismissed.

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