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2021 (12) TMI 206 - HC - Income TaxUnexplained Credit u/s 68 - HELD THAT - Any sum which as found credited in the books of the assessee maintained for any previous years and he can for more explanation about the nature and source thereof or the explanation offered by him is not satisfactory in the opinion of the Assessing Officer, such sum can be charged to income tax as the income of the assessee of that previous year. On the strength of the suspicion, AO had added the sum and charged the amount to income tax as the income of the assessee. Both the authorities have rightly held that to be an addition which is devoid of any rational.
Issues Involved:
1. Legitimacy of the addition of ?4,00,00,000/- under Section 68 of the Income Tax Act. 2. Validity of reopening of assessment under Section 147 of the Income Tax Act. 3. Adequacy of evidence provided by the Revenue to substantiate the addition. 4. Role and impact of statements and documents seized from third parties. Issue-wise Detailed Analysis: 1. Legitimacy of the Addition of ?4,00,00,000/- under Section 68 of the Income Tax Act: The primary issue revolves around whether the Income Tax Appellate Tribunal (ITAT) was correct in deleting the addition of ?4 Crores made by the Assessing Officer (AO) under Section 68 of the Income Tax Act. The AO considered the transaction as a sham and an accommodation entry against unaccounted income, relying heavily on the statement of an accountant from the Venus Group. However, the CIT Appeals and ITAT found that the documents and statements relied upon by the AO were not sufficient to substantiate the addition. Notably, the documents were seized from the Venus Group, not the assessee, and there was no direct evidence linking the cash transactions to the assessee. 2. Validity of Reopening of Assessment under Section 147 of the Income Tax Act: The reopening of the assessment under Section 147 was initiated based on information received from the CIT in connection with a search and seizure action conducted on the Venus Group, which led to the discovery of various incriminating materials. The CIT Appeals upheld the reopening of the reassessment proceedings, confirming that the procedural requirements were met, including recording reasons and obtaining necessary sanctions. 3. Adequacy of Evidence Provided by the Revenue to Substantiate the Addition: The CIT Appeals and ITAT both scrutinized the evidence provided by the Revenue. They concluded that the AO failed to provide independent, clinching evidence to support the addition. The AO's reliance on the statements of the accountant and the unaccounted cash books of the Venus Group was deemed insufficient. The appellate authorities emphasized that the burden of proof was on the AO to bring on record material information outside the assessee’s control, which was not done. 4. Role and Impact of Statements and Documents Seized from Third Parties: The appellate authorities noted that the documents and statements were seized from the Venus Group, not the assessee. The CIT Appeals and ITAT held that the unilateral entries made by the Venus Group could not be used to fix tax liability on the assessee without demonstrating a cogent nexus. The statement of the accountant, who merely recorded entries under instructions without knowledge of the source of cash, was not given weight. The absence of examination of key persons from the Venus Group further weakened the Revenue's case. Conclusion: The High Court upheld the findings of the CIT Appeals and ITAT, concluding that the addition of ?4 Crores under Section 68 was not justified. The authorities rightly determined that the addition was based on suspicion and lacked rational and legally supported documents. The appeal by the Revenue was dismissed, affirming that the burden of proof was not discharged by the AO and that the reopening of the assessment, though procedurally correct, did not substantiate the addition made. The court emphasized the need for credible proof and direct or circumstantial evidence to justify such additions under Section 68.
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