2021 (10) TMI 1151 - AT - Income Tax

Reopening of assessment u/s 147 - Bogus loan transactions - assessee failed to establish the identity and genuineness of the entities - assessee failed to reply to the show cause notices - summon u/s 131 issued to the principal officers of both these entities were not accepted which were confronted to the director o the assessee - HELD THAT - AO was clinched with specific information which indicated possible escapement of income in the hands of the assessee. The assessment u/s 143(3) was completed on 22/03/2013 whereas tangible information was received by Ld. AO vide letter dated 29/03/2017 wherein it transpired that the loans taken by the assessee during the year were from those entities which were involved in penny stock manipulation and provided exit to beneficiaries of Long Term Capital Gains. These two entities were allegedly dummy paper entities with no real business and involved in sham transactions. These facts, in our opinion, were quite sufficient to reopen the case of the assessee The arguments made by Ld. AR do not convince us. At the time of reopening, the only requirement is that Ld.AO should have specific tangible information which indicate possible escapement of income in the hands of the assessee. Nothing more is required at this stage to reopen the case of the assessee. The information so received, in our considered opinion, was sufficient tangible material. Therefore, legal grounds raised by Ld. AR stand rejected. Upon perusal of rectification order u/s 154, it could be gathered that the director of M/s Gateway Leasing Private Limited appeared before Ld. AO and his statement was recorded on oath u/s 131. In the recorded statement, the fact of advancing loan to the assessee as well as repayment was duly accepted. Upon perusal of paper-book as placed before us, it could be gathered that the assessee has duly filed ledger account of the party along with name, address, PAN of the lender, details of brokers who arranged loan, securities offered, term sheet / sanction letter, Board Resolution, Inter-corporate deposit receipt, pledge agreement and various other similar documents in support of the genuineness of the loan transaction. The loan was fully paid on 21/05/2010 along with interest. The transactions were confirmed by M/s Gateway Leasing Private Limited in response to notice u/s 133(6). Thus, the assessee had duly discharged the onus of proving the identity of the lender, their creditworthiness and the genuineness of the loan transaction. This being so, the impugned additions are not sustainable in law. Estimation of income - bogus purchases - CIT-A estimated profit element @12.5% - HELD THAT - As it could be gathered that the purchases were supported by primary purchase documents and the payments to the suppliers was through banking channels. The whole of purchases have been disallowed while accepting the sales which could not be held to be justified. Therefore, the estimation made by Ld. CIT(A), for all the three years, is quite fair and reasonable. Finding no reason to deviate from the same, we dismiss the appeals for all the three years.

Summary

Issues Involved:
1. Reopening of Assessment u/s 147
2. Addition of ?50,00,000/- u/s 68 on account of unexplained cash credit
3. Interest disallowance of ?1.21 Lacs
4. Estimated additions on account of alleged bogus purchases from Sales Tax Hawala dealers

Issue-wise Detailed Analysis:

1. Reopening of Assessment u/s 147:

The assessee challenged the reopening of the assessment on several grounds. The primary contention was that the reopening was beyond the statutory period of four years and was based solely on information from the Investigation Wing without independent application of mind by the Assessing Officer (AO). The tribunal, however, upheld the reopening of the assessment, noting that the AO received specific tangible information indicating possible income escapement. This information was deemed sufficient to justify the reopening of the case. The tribunal emphasized that at the stage of reopening, the AO only needs tangible information suggesting possible escapement of income, which was present in this case.

2. Addition of ?50,00,000/- u/s 68 on account of unexplained cash credit:

The assessee contested the addition of ?50,00,000/- as unexplained cash credit. The AO had added this amount to the income of the assessee, alleging that the loans were from entities involved in sham transactions and penny stock manipulation. The CIT(A) confirmed the addition, stating that the assessee failed to prove the identity, creditworthiness, and genuineness of the loan transactions. However, the tribunal found that the assessee had provided sufficient documentary evidence to prove the genuineness of the loan from M/s Gateway Leasing Pvt. Ltd., including ledger accounts, PAN details, and confirmation of the transaction by the lender. Consequently, the tribunal deleted the addition, concluding that the assessee had discharged its onus under Section 68 of the Act.

3. Interest disallowance of ?1.21 Lacs:

For AY 2011-12, the assessee appealed against the disallowance of ?1.21 Lacs paid as interest on the loan from M/s Gateway Leasing Pvt. Ltd. Since the tribunal deleted the quantum addition of the loan for AY 2010-11, the interest paid on this loan was deemed an allowable deduction. Therefore, the tribunal allowed this ground of appeal.

4. Estimated additions on account of alleged bogus purchases from Sales Tax Hawala dealers:

The revenue's appeals for AYs 2011-12 to 2013-14 involved estimated additions on account of alleged bogus purchases from Sales Tax Hawala dealers. The AO had disallowed the entire purchases due to unserved notices and lack of confirmation from the parties. However, the CIT(A) estimated that only the profit element embedded in such transactions should be added to the income, applying a rate of 12.5%. The tribunal upheld this estimation, finding it fair and reasonable, and dismissed the revenue's appeals.

Conclusion:

The assessee's appeals were partly allowed, with the tribunal deleting the addition of ?50,00,000/- u/s 68 and allowing the interest deduction of ?1.21 Lacs. The revenue's appeals regarding the estimated additions on account of alleged bogus purchases were dismissed. The order was pronounced on 26th October 2021.