2023 (2) TMI 641 - AT - Income Tax

Reopening of assessment u/s 147 - unexplained Loan transactions - HELD THAT - The provisions of Section 148 clearly shows that if the information is received by the AO which is a tangible material, AO should apply the independent mind by making necessary enquiries and thereafter after satisfying himself about escapement of income reopened the case. Here in the impugned order, the reopening was made on very vague information. There is no reference that how and when the intermediary bank accounts of two lenders and from whom the money was received. It was merely sated that deposit through RTGS was made in the bank account of the lender companies from the entities controlled by accommodation entry provider and from those entities; the loan has been given to the assessee. There is no finding that whether these two lender companies are also operated by the accommodation entry provider or not. Further, whether the companies who have given a loan to the assessee is a beneficiary themselves or are merely pass through entities when the loans are repaid whether the source of the loans from which it is received are also has gone to the source from which it emanated. Merely mentioning circular transaction does not show that the entities to provide the loan to the assessee company are shell companies. As held by the decision relied up of Honourable Bombay High court in case of Shodiman Investments 2018 (4) TMI 1287 - BOMBAY HIGH COURT and DRM ENTERPRISES 2014 (12) TMI 1114 - BOMBAY HIGH COURT clearly covers the issue as far as reopening is concerned. On the merits also, we find that assessee has provided the confirmation, the audited financial statements, the bank statements, the income tax return and the proof of repayment of the above loan taken from these two entities before the learned AO. Section 133(6) notices were issued on ITBA portal as well as by speed post . Based on information supplied by the assessee, AO did not carry out any further independent enquiry. AO has merely relied upon the statement of the accommodation entry provider and analyzes the annual accounts of the lender companies. Despite having the huge turnover and huge current assets, the learned Assessing Officer itself discredited those financial statements. When the assessee discharges its initial onus cast upon him by producing the confirmation, the bank statement, the annual accounts, the income tax returns as well as the details of repayment which is also confirmed by production of the bank account of the lender, the learned assessing officer is duty-bound to make an independent enquiry. Unless an independent enquiry is made by the learned assessing officer, onus does not travel back to the assessee. If the learned AO failed to throw onus back on the assessee, the addition cannot be made by him u/s 68. Reliance merely on the statement cannot be used for making an addition under section 68 of the act. In such situation, evidence on which the AO has relied, opportunity to rebut the same has not been given to the assessee, such evidence should be disregarded. Therefore, in all fairness the statement made by the accommodation entry provider before the investigation wing Kolkata deserves to be ignored. Other than that statement there is no evidence against the assessee to support the addition. In the result on the issue of reopening of the assessment as well as the addition on the merit deserves to be decided in favour of the assessee.

Summary

Issues Involved:
1. Validity of Reopening under Section 147 of the Income-tax Act.
2. Addition of Rs. 3,00,00,000/- under Section 68 as unexplained loans.

Issue-wise Detailed Analysis:

1. Validity of Reopening under Section 147:

The assessee challenged the reopening of the assessment, arguing that it was based on "surmises, conjecture and suspicion" without any tangible material. The reopening was initiated based on information from the DDIT (Inv), Kolkata, which indicated that the assessee had received loans from companies controlled by an accommodation entry provider. The Tribunal noted that the Assessing Officer (AO) did not conduct any independent inquiry before recording reasons for reopening, relying solely on the information from the DDIT. Citing the Bombay High Court's rulings in *Shodiman Investments (P.) Ltd* and *DRM Enterprises*, the Tribunal held that reopening based on borrowed satisfaction without independent verification is invalid. The Tribunal concluded that the reopening was not justified as it lacked direct nexus and was based on vague and unverified information.

2. Addition of Rs. 3,00,00,000/- under Section 68 as Unexplained Loans:

The assessee submitted various documents, including loan confirmations, bank statements, and financial statements of the lender companies, to discharge its onus of proving the identity, creditworthiness, and genuineness of the transactions. The AO, however, disregarded these documents, citing the low income and high turnover of the lender companies as indicators of their lack of creditworthiness. The AO also relied on a statement from an accommodation entry provider, which was neither provided to the assessee nor was the opportunity for cross-examination given.

The Tribunal observed that the AO failed to conduct any independent inquiry to discredit the evidence provided by the assessee. The Tribunal emphasized that the creditworthiness of a lender should be assessed holistically, considering their financial worth, turnover, and current assets, rather than merely their income. The Tribunal also noted that the AO did not substantiate the claim that the transactions were circular or non-genuine.

Further, the Tribunal held that reliance on the statement of the accommodation entry provider without providing it to the assessee or allowing cross-examination violated the principles of natural justice. The Tribunal ruled that the AO's addition under Section 68 was not justified as the assessee had adequately discharged its initial onus, and the AO did not bring any material on record to rebut the evidence provided by the assessee.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the reopening of the assessment was based on borrowed satisfaction and lacked independent verification. Additionally, the Tribunal found that the addition of Rs. 3,00,00,000/- under Section 68 was not warranted as the assessee had provided sufficient evidence to prove the genuineness of the transactions, and the AO failed to conduct any independent inquiry or provide the necessary procedural fairness. The appeal was thus decided in favor of the assessee.