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2024 (8) TMI 626 - AT - Income TaxValidity of reopening of the assessment u/s. 148 - borrowed satisfaction and without application of mind - addition u/s 68 - HELD THAT - In the present case, it is important to note that the return of the assessee was proceeded u/s. 143(1) and there was no instance of original assessment u/s. 143(3). AO received specific information from the DDIT (Inv) indicating that there were transactions between the assessee and M/s. Vishnu Trading Co. During the preliminary enquiry AO observed that the name of M/s Vishnu Trading Co. appeared in the bank account statement of assessees and also the name of assessee was found in the bank statement of M/s Vishnu Trading Co. AO recorded his reasons for satisfaction for reopening and had a reason to believe that income had escaped assessment. This belief was based on the substantial material provided by the DDIT (Inv.), which warranted further investigation. It is also noted that the prior approval of the PCIT was obtained as per procedure. The sufficiency of the reasons is not the test for deciding the validity of a notice issued u/s 148 of the Income Tax Act. The correct test is whether the AO had a reason to believe that income chargeable to tax had escaped assessment. This principle is well established in judicial precedents and reason to believe does not mean that the AO should have finally ascertained the fact by legal evidence or conclusion. It only means cause or justification to believe that income has escaped assessment. The sufficiency or correctness of the material is not a matter for consideration at the stage of issue of notice. Therefore, AO's action of reopening the assessment was in line with the principles laid down in Pushpak Bullion (P.) Ltd 2017 (8) TMI 961 - GUJARAT HIGH COURT where the reopening was justified based on tangible and specific information. AO had a valid reason to believe that income chargeable to tax had escaped assessment. The information received from the DDIT (Inv.) provided a substantial basis for the AO's belief, and his decision to reopen the assessment was justified. AO s action was not merely based on borrowed satisfaction but on specific information that required further investigation to ascertain the correctness of the transactions. Accordingly, Ground No.1 is dismissed, and the reopening of the assessment under Section 148 of the Act is upheld. The appeal of the assessee on this ground is dismissed. Unexplained cash credits u/s 68 - Amounts credited to the sales account cannot be treated as unexplained - HELD THAT - AO did not reject the books of accounts or question the quantitative details of the stock. We also observe that the AO has not placed any conclusive evidence on record to prove that the credits in the assessee's bank account are accommodation entries. The addition as unexplained cash credit cannot be sustained without such evidence. The assessee has provided sufficient documentary evidence, including sales invoices, sales register, item register showing quantitative details, and the bank book, to substantiate the transactions. We have noted the other judicial precedents relied on by the assessee can be distinguished on the basis of facts and circumstances but in case of Manoj Sharma 2019 (3) TMI 1129 - ITAT DELHI it was held that the addition cannot be made when the quantitative details of purchase, sale and stock tally. The failure to provide an opportunity for cross-examination of individuals whose statements were relied upon for making the addition violates the principles of natural justice, as established in many judicial precedents. We also note the assessee s clarification that transactions with M/s. Edelweiss Commodities Ltd. were purchase transactions and not related to the alleged sales to Vishnu Trading Co - AO's and the Ld.CIT(A)'s misunderstanding of these transactions led to incorrect conclusions. We conclude that the addition as unexplained cash credit under Section 68 of the Act is unwarranted, given that the amount represents sales already declared and taxed. Therefore, the addition made by the AO and confirmed by the Ld.CIT(A) is deleted, and these grounds of appeal are allowed. Taxing income u/s 115BBE - Since we have deleted the addition under Section 68 of the Act, the confirmation by the Ld.CIT(A) of the AO's action to tax the income under Section 115BBE of the Act is also unwarranted. Levy of interest under Sections 234A, 234B, 234C, and 234D - As the principal addition itself is deleted, the consequential levy of interest under section 234A, 234B, 234C and 234D of the Act is accordingly deleted. Penalty u/s 271(1)(c) - With the deletion of the addition, the initiation of penalty proceedings under Section 271(1)(c) of the Act becomes unjustified
Issues Involved:
1. Reopening of assessment under Section 148 of the Income Tax Act. 2. Addition of Rs. 1,92,29,000/- as unexplained cash credit under Section 68 of the Act. 3. Treatment of sales realization as loan. 4. Denial of opportunity for cross-examination. 5. Taxation of income under Section 115BBE. 6. Levy of interest under Sections 234A, 234B, 234C, and 234D. 7. Initiation of penalty proceedings under Section 271(1)(c). Issue-wise Detailed Analysis: 1. Reopening of Assessment under Section 148: The assessee argued that the reopening of the assessment was based on borrowed satisfaction without independent application of mind by the AO. The AO reopened the assessment based on information from the DDIT (Inv), indicating transactions between the assessee and M/s. Vishnu Trading Co. The Tribunal upheld the reopening, citing that the AO had a valid reason to believe that income had escaped assessment based on substantial material provided by the DDIT (Inv). The Tribunal referred to the principles established in judicial precedents, emphasizing that the sufficiency of reasons is not the test for the validity of a notice under Section 148. The AO's action was justified as it was based on tangible and specific information, warranting further investigation. 2. Addition of Rs. 1,92,29,000/- as Unexplained Cash Credit under Section 68: The assessee contended that the amount was already included in the total sales declared and taxed, and provided sufficient documentary evidence, including sales invoices, sales register, item register showing quantitative details, and the bank book. The Tribunal noted that the AO did not reject the books of accounts or question the quantitative details of the stock. The Tribunal held that the addition of Rs. 1,92,29,000/- as unexplained cash credit was unwarranted, as the amount represented sales already declared and taxed. The Tribunal referred to the judicial precedent in Vishal Exports Overseas Ltd., where income already offered for taxation cannot be taxed again as unexplained cash credit. 3. Treatment of Sales Realization as Loan: The assessee explained that the alleged transaction was actually sales and already offered as income in the profit and loss account. The Tribunal observed that the AO and the Ld.CIT(A) misunderstood the transactions with M/s. Edelweiss Commodities Ltd. as sales instead of purchases. The Tribunal concluded that the AO's and the Ld.CIT(A)'s misunderstanding led to incorrect conclusions, and the amount could not be treated as unexplained cash credit. 4. Denial of Opportunity for Cross-examination: The assessee argued that the AO did not provide the opportunity to cross-examine the parties based on whose statements the addition was made. The Tribunal noted that the failure to provide an opportunity for cross-examination violated the principles of natural justice, as established in many judicial precedents. 5. Taxation of Income under Section 115BBE: Since the Tribunal deleted the addition under Section 68 of the Act, the confirmation by the Ld.CIT(A) of the AO's action to tax the income under Section 115BBE was also unwarranted. 6. Levy of Interest under Sections 234A, 234B, 234C, and 234D: With the deletion of the principal addition, the consequential levy of interest under Sections 234A, 234B, 234C, and 234D of the Act was also deleted. 7. Initiation of Penalty Proceedings under Section 271(1)(c): The initiation of penalty proceedings under Section 271(1)(c) of the Act was quashed, as the principal addition itself was deleted. Conclusion: The Tribunal partly allowed the appeal by the assessee, upholding the reopening of the assessment under Section 148 but deleting the addition of Rs. 1,92,29,000/- as unexplained cash credit under Section 68. Consequently, the related issues of taxation under Section 115BBE, levy of interest, and initiation of penalty proceedings were also resolved in favor of the assessee.
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