2023 (9) TMI 251 - AT - Income Tax

Validity of reopening of assessment - assessee contention that AO has not disposed of the objection filed during the course of reassessment proceedings by passing a speaking order as mandated - bogus loan transaction of the assessee - reasons to believe recorded by the Ld. AO are based on reproduction of the survey report submitted by DDIT (Inv.), Guwahati and the statements recorded of Shri Ram Lal Gulgulia and Bijoy Singh Lodha in the case of survey of Gulgulia Trade Pvt. Ltd., Silchar - HELD THAT - CIT(A) had called for clarification from the AO in respect of disposal of objections to the reopening, raised by the assessee. To this effect, AO had replied vide letter, scanned copy of which is reproduced in the order of Ld. CIT(A). From its perusal it is noted that Ld. AO has admitted that objections to the reopening of the assessment as raised by the assessee were not disposed of by him by way of any written/speaking order. Thus non-disposal of the objections of the assessee by the Ld. AO without passing a written/speaking order renders the assessment order and the consequential additions as bad in law. AO has not provided the copy of statements of all the three persons which formed the basis of arriving at the reasons to believe - no opportunity has been given to the assessee to cross examine these three persons though specific request had been made in the course of assessment proceeding - From the perusal of the impugned order and the reasons to believe, it is seen that Ld. AO has not applied his mind to the purported information received from the Investigation Wing. The approach adopted is a mechanical approach and falls in the category of borrowed satisfaction. It is important to note that survey was conducted in the case of GTPL wherein assessee is not a director. Statements of directors of TSPL i.e. Shri Ramlal Gulgulia and Shri Bijoy Singh Lodha were recorded in the course of survey of GTPL on 06.01.2017 which were relied upon by the Ld. AO. These had also been retracted. Another important fact which is borne in mind is that statement of Shri Akash Agrawal, erstwhile director of TSPL was recorded in the course of survey of TSPL on 10.02.2015 which is much prior to the conduct of survey in the case of GTPL (Ram Lal Gulgulia Group). Material on the basis of which reasons to believe were recorded have not been confronted to the assessee, thus, the impugned order suffers from noncompliance with the principles of natural justice and thus, deserves to be quashed. Accordingly, grounds taken by the revenue in this respect are dismissed. Addition of opening balance in the creditors account is not permissible u/s. 68 since it does not represent a credit in the books of account during the year - To substantiate its claim, copy of loan confirmation, balance sheet, bank statement and affidavit of TSPL were placed on record. On perusal of the confirmation, statement and the other documents, it is evident that amount of Rs. 1.75 Cr. was received by the assessee during the preceding years and not in the year under consideration. AO has disregarded the submissions made by the assessee by observing that amount appearing as opening balance is also a credit and the explanation offered by the assessee for its nature of sources is not satisfactory in the opinion of the AO CIT(A) has dealt with this issue after corroborating the same with the documentary evidence placed on record. We do not find any reason to interfere with the finding given by the Ld. CIT(A) in this respect. It is trite law that in case the liabilities are old and no credit has been made in respect of those liabilities in the books of account in the year under consideration, no addition can be made u/s. 68 - Decided against revenue.

Summary

Issues Involved:
1. Jurisdictional and legal aspect of the reassessment.
2. Merit of the relief granted by the Ld. CIT(A).

Summary:

Jurisdictional and Legal Aspect of the Reassessment:

The appeal filed by the assessee challenges the order of Ld. CIT(A), Shillong, which quashed the reassessment order passed by the AO. The primary contention is that the AO's formation of belief was based solely on the survey report under section 133A and the statements recorded therein, without any independent enquiry or application of mind. The Ld. CIT(A) observed that the reasons to believe were borrowed from the Investigation Wing's report, and no independent verification was conducted by the AO. This was deemed as "borrowed satisfaction," which is not permissible under the law. The Ld. CIT(A) relied on the Supreme Court's decision in Calcutta Discount Co. Ltd. [1961] 41 ITR 191 (SC) to support this view.

Additionally, the AO failed to dispose of the objections raised by the assessee against the initiation of proceedings under section 147 by passing a speaking order, as mandated by the Supreme Court in GKN Driveshaft (India) Ltd. Vs. ITO [2013] 259 ITR 19 (SC). This non-compliance renders the assessment order invalid.

The AO also did not provide the assessee with copies of the statements of the three persons on which the reassessment was based, nor were these persons made available for cross-examination. This was considered a violation of the principles of natural justice, as supported by the Supreme Court's decision in Andaman Timber Industries Ltd. Vs. Commissioner of Central Excise [2015] 281 CTR 241 (SC).

Merit of the Relief Granted by Ld. CIT(A):

The Ld. CIT(A) deleted the addition made by the AO on the grounds that the material relied upon for the assessment was not confronted to the assessee. The AO had based the addition on the confessional statements recorded under section 131, which were later retracted. The Ld. CIT(A) found that the AO did not provide any corroborative evidence to support the addition, making the assessment untenable.

The AO had also added the opening balance of Rs. 1.75 Cr. under section 68, which was contested by the assessee. The Ld. CIT(A) observed that the amount was received in preceding years and not in the year under consideration. Therefore, the addition under section 68 was not permissible, as it did not represent a credit in the books of account during the year.

Conclusion:

The Tribunal upheld the Ld. CIT(A)'s decision, finding that the reassessment proceeding was invalid due to non-application of mind by the AO and violation of principles of natural justice. Consequently, the merits of the case were not adjudicated, rendering the appeal of the revenue dismissed.