2024 (5) TMI 950 - AT - Income Tax

Validity of reassessment proceedings on borrowed satisfaction - allegation of non independent application of mind - As per AO assessee had entered into high value financial transactions facilitating bogus accommodation entries - Addition u/s 68 for unexplained cash credit - AO relied upon investigation report of Banka Group supplied by the Investigation Wing of the Income Tax Department - HELD THAT - AO has failed to verify the transaction recorded by the Investigation Wing which are double entries made for the same transactions of Rs. 20,00,056/- and Rs. 30,00,056/-. Though the A.O. records the unsecured loan of Rs. 50,00,000/- received by the assessee from M/s. KCPL, however upheld the double entry addition of Rs. 1,00,00,224/ as the undisclosed income of the assessee. A.O. failed to consider the repayment of above loan by the assessee during the assessment year 2018-19 which was not disputed, while framing the assessment order for the assessment year 2018-19 by the very same AO. Thus in our considered view, A.O. has simply accepted the information given by DGIT which is reproduced in the reasons recorded, he has not formulated his own reason to belief that any income chargeable to tax has escaped assessment. A.O. ought to have seen the double entry of the loan transactions with bank entry details and then formulated his own reason to belief but simply followed the information given by DGIT, which is nothing but borrowed satisfaction and is against the provision of Section 147 of the Act. Therefore the same is liable to be quashed. As decided in Varshaben Sanatbhai Patgel 2015 (11) TMI 934 - GUJARAT HIGH COURT held that in the absence of any details available on record, AO could not initiate assessment proceedings merely on the basis of information supplied by DGIT (Inv.) that assessee had made certain bogus purchases. Thus reopening of assessment itself is bad in law for having not recorded independent reason to believe that income has escaped assessment. Decided in favour of assessee.

Summary

Issues Involved: Validity of reopening of assessment u/s 147, addition u/s 68 for bogus unsecured loans.

Issue 1: Validity of Reopening of Assessment u/s 147

The Assessee challenged the validity of reopening the assessment, arguing that the reasons recorded were vague, non-specific, and based on borrowed satisfaction without independent application of mind by the Assessing Officer (AO). The AO relied on an investigation report from the Banka Group case, which alleged that the Assessee received bogus unsecured loans from M/s. Kotiratan Commosales Pvt. Ltd. (KCPL). The Tribunal found that the AO did not independently verify the transactions and simply accepted the information provided by the Directorate General of Income Tax (DGIT), constituting borrowed satisfaction. The Tribunal cited several judgments, including those from the Jurisdictional High Court, emphasizing the necessity for the AO to form an independent opinion based on material on record. The Tribunal concluded that the reopening of assessment was invalid as it was based on borrowed satisfaction and lacked independent reasoning.

Issue 2: Addition u/s 68 for Bogus Unsecured Loans

The Assessee contended that the addition of Rs. 50,00,000/- u/s 68 was unjustified as the identity of the creditor, genuineness of the transaction, and the source of the funds were established. The Assessee argued that the amount was received through banking channels and repaid in the Assessment Year 2018-19, which was accepted by the same AO. The Tribunal observed that the AO failed to consider the repayment of the loan and relied solely on the investigation report. The Tribunal held that the addition was not justified and quashed the reassessment order.

Conclusion:

The Tribunal allowed the appeal, quashing the reassessment order and the addition made u/s 68, holding that the reopening of assessment was invalid due to the lack of independent reasoning by the AO and the reliance on borrowed satisfaction.

Order pronounced in the open court on 03-01-2024