2022 (9) TMI 661 - HC - Income Tax

Reopening of assessment u/s 147 - unexplained cash credit - HELD THAT - Genuineness of the transactions were not established by the assessee and the summons which were issued to those entities were also non complied with. These facts which were brought on record during the reassessment proceedings was re-examined by the CIT(A) who has also recorded its independent findings while upholding the order passed by the assessing officer. CIT (A) not only considered the findings of the assessing officer but also examined the remand report and held that it has been established by detailed enquiry that the fund transferred into the account of the assessee were mostly from entry operators based companies who are only giving accommodation entries and similarly funds have been transferred from the assessee to the operators based companies who are also engaged in the business of providing accommodation entries and bogus billings. CIT(A) also noted that during the scrutiny proceedings and remand proceedings none other directors of the said company appeared before the assessing officer and the AO rightly identified nine shell companies who are providing bogus purchase bills and accordingly held that the assessee has deposited its own unaccounted cash in the bank account and confirmed the findings of the assessing officer. Unfortunately, the tribunal failed to examine any of the factual details which have been brought out by the AO as well as the CIT(A) but merely went on the basis as to what are the conditions to be fulfilled in order to reopen the assessment. As pointed out earlier, reasons given by the learned tribunal to distinguish the decision in Peass Industrial Engineers is not tenable. We are of the view that the order passed by the tribunal has ignored the crucial aspects of the matter which are relevant to the reopening of the assessment. Thus, we are of view that the order impugned calls for interference. Appeal of revenue allowed.

Summary

Issues Involved:
1. Validity of reassessment under Section 147 of the Income Tax Act, 1961.
2. Allegations of bogus transactions and accommodation entries by the assessee.
3. Rejection of books of accounts under Section 145(3) of the Act.
4. Tribunal's decision on the reopening of assessment after four years.

Detailed Analysis:

1. Validity of Reassessment under Section 147 of the Income Tax Act, 1961:
The primary issue was whether the Income Tax Appellate Tribunal (ITAT) erred in law by quashing the reassessment proceedings under Section 147 of the Act. The revenue argued that the reassessment was based on new information received from the investigation wing about large non-cash transactions and cash deposits in the assessee's bank account, which were allegedly routed through shell companies. The Tribunal had quashed the reassessment on the grounds that there was no allegation of the assessee failing to disclose fully and truly all material facts, and hence, reopening after four years was unjustified.

2. Allegations of Bogus Transactions and Accommodation Entries by the Assessee:
The assessing officer found that the assessee had substantial transactions with entities identified as shell companies and entry operators, which provided accommodation entries and bogus billings. The assessee failed to substantiate these transactions or produce relevant parties for verification. The assessing officer concluded that nearly 50% of the assessee's purchases were from bogus parties and that large cash deposits in the assessee's bank account were unexplained.

3. Rejection of Books of Accounts under Section 145(3) of the Act:
The assessing officer, noting discrepancies and defects in the Books of Accounts, Profit and Loss Account, and Balance Sheet, invoked Section 145(3) to reject the books of accounts. The CIT(A) upheld this decision, citing that the funds transferred into the assessee's account were from entry operators and shell companies, and the assessee failed to produce original documents to substantiate its transactions.

4. Tribunal's Decision on the Reopening of Assessment after Four Years:
The Tribunal held that the reopening of the assessment was invalid as there was no failure on the part of the assessee to disclose material facts. It distinguished the cases cited by the revenue, stating that those cases involved reopening within four years or under different circumstances. However, the High Court disagreed with the Tribunal, citing that the information from the investigation wing constituted new and tangible material justifying the reopening of the assessment, even after four years.

Conclusion:
The High Court allowed the revenue's appeal, setting aside the Tribunal's order and restoring the CIT(A)'s order. It held that the reassessment was valid based on new information about the assessee's transactions with shell companies and entry operators. The Court emphasized that at the stage of recording reasons for reopening, the assessing officer only needs prima facie material, not conclusive evidence. The substantial question of law was answered in favor of the revenue, and the Tribunal's failure to consider the factual details brought out by the assessing officer and CIT(A) was highlighted.