2023 (9) TMI 373 - AT - Income Tax

Assessment u/s 153A - Addition u/s 68 - unexplained cash credits in the books of the assessee - retracted statement - AO had primarily relied on the statement of Shri Rajesh Bhagat who was the Director in of the predecessor entity of the assessee - CIT(A) deleted the addition as nothing has been found during search to substantiate that the appellant has taken bogus entries and routed its fund - HELD THAT - The Bench is of the considered opinion that Ld. AO had fallen in error in relying the retracted statement of Shri Brijesh Bhagat. If at all the statement of Shri Brijesh Bhagat was relevant the same should have been corroborated by some material evidences from the enquiry the Ld. AO had conducted with regard to creditworthiness of the parties. Shri Bhagat had denied all the facts of statement dated 16.03.2016 given by him before DDIT(Inv.), Kolkata and an affidavit dated 29.03.2016 of retraction was also filed before Ld. AO. Ld. AO had sought the comments of DDIT(Inv.), Kolkata on the retraction which made the submission that it was an afterthought effort. Thus, the Bench has no hesitation but to accept the observation of the coordinate bench in regard to the assessments completed u/s 153A of the Act that the retracted statement of Shri Bhagat was not reliable piece of evidence and like making addition u/s 153A the same could not have been the sole basis of reopening also. There is no error in finding of CIT(A). The grounds raised have no substance. Non-disposal of the objections of assessee against the validity of jurisdiction exercised by Ld. AO in passing the re-assessment order u/s 148 - CIT(A) seems to have not taken cognizance of the fact that specific ground was raised before him that AO had not followed the procedure for issuing notice u/s 148 of the Act as Ld. CIT(A) considered to be a superfluous in the light of earlier proceedings u/s 264 of the Act. CIT(A) has appreciated the matter before him only on the merits. A discussion hereinabove has established that Ld. AO had fallen in error in exercise of jurisdiction beyond the scope of Section 147/148 of the Act as there was absence of independent opinion as basis in his reasons to re-open and there was no tangible material except retracted statement of a witness Mr. Bhagat. Thus, the cross objection deserved to be sustained. Consequently, the appeal of Revenue is dismissed and Cross objection stand allowed.

Summary

Issues Involved:
1. Deletion of addition made by AO under Section 68 of IT Act.
2. Validity of jurisdiction for passing a re-assessment order under Section 148 of IT Act.

Summary:

Issue 1: Deletion of Addition under Section 68 of IT Act

The Departmental appeal was directed against the deletion of an addition of Rs. 3,56,79,600/- made by the AO under Section 68 of the IT Act on account of unexplained cash credits. The AO had primarily relied on the statement of Shri Rajesh Bhagat, who was the Director in M/s Rajesh Metal India, the predecessor entity of the assessee. The CIT(A) set aside the addition, observing that the statement of Shri Bhagat was not reliable as he had retracted and given divergent statements on different occasions. The CIT(A) also noted that no cogent reasoning or evidence was relied upon by the AO, and nothing was found during the search to substantiate that the appellant had taken this amount as a bogus entry and routed its funds for the year under consideration.

The Revenue contended that the CIT(A) erred in law and on facts in deleting the addition without appreciating the fact that Shri Bhagat had admitted twice in his statement that the assessee company was involved in providing accommodation entries. However, the Tribunal observed that the statement of Shri Bhagat, being a standalone evidence, could not be the basis for additions without corroborating material. The Tribunal upheld the CIT(A)'s decision, stating that the retracted statement of Shri Bhagat was not a reliable piece of evidence and could not be the sole basis for reopening the assessment.

Issue 2: Validity of Jurisdiction for Re-assessment under Section 148 of IT Act

The assessee filed cross objections, challenging the validity of the jurisdiction of the AO for passing a re-assessment order under Section 148 of the IT Act. The assessee argued that the reasons for reopening were merely based on information from the investigation wing without independent application of mind or investigation, making the re-opening wholly on the basis of borrowed satisfaction. The Tribunal noted that the AO had relied heavily on the statement of Shri Bhagat and the suggestion of DDIT (Investigation) without any corroborating material. The Tribunal found that the AO had fallen in error in relying on the retracted statement of Shri Bhagat and had not substantiated the material on which he doubted the creditworthiness of the investing companies. The Tribunal concluded that the re-assessment proceedings were illegal and not sustainable for want of tangible material, and the cross objections deserved to be sustained.

Consequently, the appeal of the Revenue was dismissed, and the cross objections of the assessee were allowed.

Order pronounced in the open court on 11/07/2023