2022 (5) TMI 1054 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - whether Provisions of Section 68 of the Act can be applied or not in deposits in the bank statements? - Identifying the real beneficiary of accommodation entry - HELD THAT - We find that the issue is squarely covered against the assessee by the decision of Hon'ble Bombay High Court in case of shri Arunkumar J. Muchhala 2017 (8) TMI 1137 - BOMBAY HIGH COURT wherein Hon'ble Bombay High Court has held that where huge amounts credited to the bank account of the assessee, source of which is not explained, the provision of section 68 of the Act are applicable. While deciding so, Honourable High court also considered decision relied up on in CIT vs. Bhaichand H. Gandhi 1982 (2) TMI 28 - BOMBAY HIGH COURT in paragraph no. 7. In view of this, we dismiss additional ground raised. Addition u/s 68 - Now before us assessee has submitted the copy of the complaint filed before the metropolitan Magistrate and also complaint before Commissioner of Police on 13th February, 2017. Assessee filed same before the learned CIT(A) on 1/2/2017, however, date of the order of the learned CIT(A) is 16th November, 2016 where the date of the order mentioned in form no. 36 is 16th November, 2018, apparently, there may be some typographical error on the part of the learned CIT(A) in mentioning those dates. In this type of transactions, multiple economic offence laws are triggered. In some of such laws Ld. Assessing Officer himself is authority to initiate/or inform to respective authorities. and in some of the case those may be referred to the respective authorities. It is the bounden duty of the authorities to take the issues to its logical conclusion. We are surprised that bankers were oblivion to the facts about suspicious transactions carried out in the bank account. On examination of bank account, Ld. DDIT, LD AO and LD CIT(A) also remained passive. Therefore, we are of the opinion that such transactions need to be probed further to curb such a malpractice. We set aside all these appeals back to the file of the learned Assessing Officer with following directions. i. To obtain information of the above bank account such as the ownership of CD account wherefrom the cheques were received, signature of persons who withdrew cash of Rs. 1 lakhs on more than 100 occasions, where and how cheque books were issued, who are the owners of the bank accounts where the sums are diverted, These evidences may be obtained by the learned Assessing Officer by use of powers under section 133(6) as well as under section 131 of the Act. The Assessing Officer may also use any other provisions of the law which he is empowered to. ii. to obtain the complete details of Yash Impex, whose permanent account number is available in the statement recorded by the Bank Manager. Apparently, Yash Impex is the real beneficiary of the flow of the funds from this bank account. It may be possible that M/s. Yash Impex may also be carrying similar transactions and the real beneficiary may be other persons. iii. The Assessing Officer may also invoke the provisions of section 147 of the Act in all those persons who entered in to these transactions, after issuing them notices, keeping in mind provisions of section 153(6) of the Act. iv. If the account is found to be operated by the assessee, the assessee is also duty bound to state whether he is an accommodation entry provider or owner of the money. No doubt, onus lies on the assessee. If the assessee gives names of the beneficiary as mentioned in the bank account, the addition deserves to be made in the hands of the beneficiary. v. If, on examination it is found that it is a case of money laundering, the Assessing Officer is further directed to take necessary action by reporting appropriately. vi. The Assessing Officer is further required to issue notice to all the concerned persons including the assessee prior to taking any action against those persons. Further, the Assessing Officer is directed to give proper opportunity of hearing to the assessee as well as other persons before deciding the issue.

Summary

Issues Involved:
1. Addition of unexplained cash credits under section 68 of the Income Tax Act.
2. Reopening of assessment under section 147 of the Income Tax Act.
3. Validity of the addition without granting cross-examination of the bank manager.
4. Applicability of section 68 to bank deposits.

Issue-wise Detailed Analysis:

1. Addition of Unexplained Cash Credits under Section 68:
The core issue in these appeals is the addition of substantial amounts as unexplained cash credits under section 68 of the Income Tax Act. The assessee's bank account with Union Bank of India showed significant deposits, which the Assessing Officer (AO) added to the assessee's income as unexplained cash credits. The assessee denied owning or operating the bank account, claiming that the account was fraudulently opened and operated by a third party using his details.

The AO issued notices and conducted inquiries, including obtaining KYC details from the bank and recording the bank manager's statement. The bank manager confirmed that the account was opened following standard procedures, and the signatures on the account opening form and PAN card appeared identical. Despite the assessee's claims of forgery and filing a police complaint, the AO concluded that the assessee failed to provide substantial evidence to prove otherwise and made the addition under section 68.

2. Reopening of Assessment under Section 147:
The assessee's case was reopened under section 147 based on information received from the Deputy Director of Income Tax (Investigation) about the substantial deposits in the bank account. The AO believed that income chargeable to tax had escaped assessment. The assessee challenged the reopening, arguing that it was based on a change of opinion. However, the AO and the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the reopening, stating that there was a valid reason to believe that income had escaped assessment.

3. Validity of the Addition without Granting Cross-Examination of the Bank Manager:
The assessee contended that the addition was invalid as the AO did not provide an opportunity to cross-examine the bank manager, whose statement was relied upon. The Tribunal noted that this issue was raised as an additional ground and admitted it for consideration. However, the Tribunal did not adjudicate this ground separately, as the case was remanded to the AO for further investigation.

4. Applicability of Section 68 to Bank Deposits:
The assessee argued that deposits in a bank account could not be added under section 68, relying on the jurisdictional High Court decision in the case of Bhaichand H Gandhi (141 ITR 67) (Bom). However, the Tribunal found that the issue was covered against the assessee by the decision of the Hon'ble Bombay High Court in the case of Arunkumar J. Muchhala Vs. CIT (319 ITR 256) (Bom), which held that section 68 applies to unexplained credits in bank accounts. Thus, the Tribunal dismissed this additional ground.

Remand for Further Investigation:
The Tribunal observed several discrepancies and potential fraudulent activities related to the bank account. It noted that the real beneficiary of the transactions appeared to be Yash Impex, introduced by Mr. Satish Kundanmal Porwal. The Tribunal directed the AO to conduct a thorough investigation, including obtaining details of the CD account from which funds were transferred, examining the role of Yash Impex, and identifying the actual beneficiaries of the transactions. The AO was also instructed to consider the provisions of the Prohibition of Benami Property Transactions Act if applicable and to give the assessee and other concerned parties a proper opportunity to present their case.

Conclusion:
The Tribunal set aside the additions and remanded the case to the AO for a comprehensive investigation and fresh adjudication based on the merits of the case. The appeals were allowed for statistical purposes, and the AO was directed to follow specific guidelines to ensure a fair and thorough examination of the issues involved.