2022 (9) TMI 182 - AT - Income Tax

Reopening of assessment u/s 147 - information from Investigation Wing of the I.T. Department was received with regard to the bogus accommodation entries - 'suspicion v/s 'reason to believe' - we thereby allow this ground of appeal filed by the assessee. assessee contended that the AO has erroneously stated that the assessee did not file its return of income for A.Y. 2009-10 in his reasons for reopening the assessee s case - HELD THAT - Upon perusal of the reasons for reopening as stated by the AO wherein as specified that the assessee has failed to file his return of income for the impugned year has been rebutted by the assessee by furnishing the copy of the details of the returns. Assessing Officer ought to have verified the same. The balance-sheet filed by the assessee reflects the unsecured loan of Rs.65 lakhs availed in F.Y. 2008-09 from M/s Seven Star Gems Pvt Ltd. The bank statements also corroborates the said transaction. AO has the jurisdiction to reopen an assessment only when he has reason to believe that income chargeable to tax has escaped assessment. This reason must be on concrete facts. In the present case in hand, it is observed that the Assessing Officer was of the view that the assessee has failed to file its return of income for the impugned year under section 139(1), which, in itself was an incorrect fact. We would place our reliance on the decision of the Hon ble Apex Court in the case of NRA Iron Steel Pvt Ltd 2019 (3) TMI 323 - SUPREME COURT wherein the assessee has discharged the onus by furnishing details regarding the identity, creditworthiness and genuineness of the impugned transaction, the onus shifts to the Revenue. In the present case in hand, the Assessing Officer has failed to prove beyond doubt that the impugned transaction pertaining to the unsecured loan given by M/s Seven Stars Gems Pvt Ltd was only an accommodation entry. We are of the considered opinion that the Assessing Officer has reopened the assessment only on the basis of suspicion and not on reason to believe , we thereby allow this ground of appeal filed by the assessee.

Issues:
1. Validity of assessment order passed under section 147 r.w.s. 143(3) of the I.T. Act.
2. Addition of Rs.65,00,000/- as unexplained cash credit.
3. Failure to provide an opportunity to controvert inspector's report.

Issue 1: Validity of assessment order under section 147 r.w.s. 143(3):
The assessee challenged the reopening of assessment under section 147, contending that the order was invalid, bad in law, and violated principles of natural justice. The Assessing Officer's reasons for reopening mentioned the failure of the assessee to file the return of income for the relevant assessment year, which was rebutted by the assessee presenting a copy of the filed return. The balance-sheet filed by the assessee disclosed the unsecured loan of Rs.65 lakhs from M/s Seven Star Gems Pvt Ltd, supported by bank statements. The Assessing Officer's assertion that the assessee failed to disclose true income was found to be based on incorrect facts. The Tribunal referred to various decisions highlighting the necessity for concrete reasons to reopen an assessment and emphasized the importance of addressing objections raised by the assessee. The Tribunal concluded that the reopening was based on suspicion rather than a reason to believe, thus allowing the appeal on this ground.

Issue 2: Addition of Rs.65,00,000/- as unexplained cash credit:
The Assessing Officer added Rs.65,00,000/- as unexplained cash credit, alleging that the assessee received unsecured loans from a party involved in accommodation entries. The CIT(A) upheld this addition, stating that the identity, genuineness, and capacity of the payer were not adequately established. The assessee argued that the reopening was solely based on a retracted statement and that the details of the transaction were provided, shifting the onus to the Revenue. Citing a Supreme Court decision, the Tribunal emphasized that once the assessee provides details regarding identity, creditworthiness, and genuineness of the transaction, the onus shifts to the Revenue. It was observed that the Assessing Officer failed to conclusively prove that the loan was merely an accommodation entry, leading to the allowance of the appeal on this ground.

Issue 3: Failure to provide an opportunity to controvert inspector's report:
The assessee contended that there was a failure to provide any report from the inspector regarding the alleged lender not being found at the given address, depriving the assessee of an opportunity to counter the claim. This lack of opportunity to controvert the inspector's report was raised as a violation of principles of natural justice. However, the Tribunal's decision to allow the appeal on other grounds rendered this issue moot for further adjudication.

In conclusion, the Appellate Tribunal ITAT Mumbai allowed the appeal, quashing the assessment order and avoiding the need to address the issue on merit. The Tribunal found the reopening of the assessment to be based on suspicion rather than a reason to believe, leading to the invalidity of the assessment order. The addition of Rs.65,00,000/- as unexplained cash credit was overturned as the Assessing Officer failed to prove it was an accommodation entry. The failure to provide an opportunity to controvert the inspector's report was noted but did not require separate adjudication due to the overall decision in favor of the assessee.

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