2024 (11) TMI 532 - AT - Income Tax

Validity of reopening u/s. 147 - Undisclosed income - assessee has failed to establish the genuineness and creditworthiness of person from whom loan and advances was provided - reliance information from the Investigation Wing which too was based on analysis of the value of the property, gross total income shown by the assessee and presumed incapacity of the company M/s. Sneha Ferromet Pvt. Ltd who has provided such loan on the premise that the income of such company was meager - CIT(A) deleted addition HELD THAT - There is nothing on record that some kind of investigation or in some inquiry any adverse material was found that the loan given by the said company was not genuine. The entire reason is based on certain hypothesis and presumptions that looking to the overall turnover of the company, it could not have given such loan. Nothing has been brought on record whether the company was asked to prove the source of the loan given to the assessee and the company has failed to substantiate the sources. Apart from that, this precise issue was raised during the course of the assessment proceedings u/s. 143(3) / 153A and also in response to the query raised on the basis of AIR information. Assessee had submitted all the details of the purchase of the property including the source of investments made and after examining these documents, the assessment was completed and no adverse inference was drawn. There is no tangible material coming on record post completion of assessment that investment has been made by the assessee from some undisclosed sources or the sources were not explained. Accordingly, we hold that the reasons recorded by the AO does not given jurisdiction, reopened the assessment completed u/s. 143(3) / 153A and same deserves to be quashed. Accordingly, the grounds raised by the assessee and cross objection filed by the assessee are allowed. Doubt the source of funds - Even on merits which has been challenged by the department in their grounds of appeal, it is seen that the entire addition in based on the reason that source of investment made in the purchase of property has not been explained. First of all, as stated above, the total value of investment in the two properties - If the AO is making the addition on account of investment, then, he has to examine the source of investment debited in the books of accounts and not the market value of the property of which has been added. Apart from that, in one of the property, major investment was done in the earlier financial year and not in this year. AO has not even examined the records filed before him while making the addition, because once the major investment has been made in the earlier year then, how the same can be added in this year? In so far as source of funds are concerned, the assessee had explained that same was trough loan taken from a company, M/s. Sneha Ferromet Pvt. Ltd. And in support assessee filed the confirmation, bank statement and return of income of the company and from the perusal of the bank statement, it is seen that the funds have come from clearing and has been given on various dates to the assessee. No questions have been asked about the source of the funds from the company by the AO. Once company had shown the source of giving loan from various transactions reflected in the bank statement and has given the details, we do not find any reason to doubt the source of funds. Onus which lied upon the assessee had been fully discharged to prove the source of purchase of the property - Assessee appeal allowed.

Summary

Issues Involved:

1. Deletion of disallowance of Rs. 3,44,27,000/- as undisclosed income.
2. Validity of reopening the assessment under Section 147.
3. Creditworthiness and genuineness of the loan transaction from M/s Sneha Ferromet Pvt. Ltd.
4. Determination of the source of funds for property purchase.
5. Onus of proving the source of investment.

Detailed Analysis:

1. Deletion of Disallowance of Rs. 3,44,27,000/- as Undisclosed Income:

The Revenue challenged the deletion of an addition of Rs. 3,44,27,000/- made by the Assessing Officer (AO) as undisclosed income. The AO argued that the assessee failed to establish the genuineness and creditworthiness of the lender, M/s Sneha Ferromet Pvt. Ltd., which had provided a loan despite having a low capital base. The CIT(A), however, deleted the addition, observing that the identity of the lender was established through Income Tax Returns, and the genuineness of the transaction was supported by confirmations and banking records. The CIT(A) emphasized that the lender's financial capacity was evident from its audited financial statements, and the mere fact that the lending party had meager income did not negate its ability to extend loans, as the balance sheet also reflects the capacity to provide loans.

2. Validity of Reopening the Assessment under Section 147:

The assessee contested the reopening of the assessment under Section 147, arguing it amounted to a 'change of opinion' since all details were previously submitted and examined during the original assessment. The AO had reopened the case based on information from the Investigation Wing, suggesting unexplained investment in property. However, the Tribunal found that the reopening was based on presumptions without tangible evidence or new material. The AO did not conduct any independent inquiry or verify records to substantiate the claims. The Tribunal held that the reasons recorded for reopening the assessment did not provide a valid jurisdictional basis, thus quashing the reopening.

3. Creditworthiness and Genuineness of the Loan Transaction from M/s Sneha Ferromet Pvt. Ltd.:

The AO questioned the creditworthiness of M/s Sneha Ferromet Pvt. Ltd., which had provided a loan to the assessee, citing the company's meager income and liabilities. The Tribunal, however, noted that the assessee had submitted sufficient documentation, including bank statements, loan confirmations, and financial statements, to demonstrate the genuineness of the transaction. The Tribunal emphasized that the onus of proving the source of funds was adequately discharged by the assessee, and the AO failed to provide contrary evidence to challenge the lender's capacity.

4. Determination of the Source of Funds for Property Purchase:

The AO added the market value of the property as unexplained income, arguing that the source of funds was suspicious. However, the Tribunal clarified that the actual investment made by the assessee was Rs. 2,79,83,000/-, not the market value of Rs. 3,44,27,000/-. The Tribunal found that the AO did not properly examine the source of investment recorded in the assessee's books and failed to consider the payments made in the previous year. The Tribunal concluded that the source of funds was adequately explained and documented by the assessee.

5. Onus of Proving the Source of Investment:

The Tribunal reiterated that the onus to prove the source of investment lies with the assessee, which was duly met by providing comprehensive evidence, including loan confirmations and financial records. The AO's reliance on presumptions without conducting a thorough investigation or inquiry into the lender's financial capacity was insufficient to sustain the addition. The Tribunal upheld the CIT(A)'s decision to delete the addition, affirming that the assessee had satisfactorily explained the source of funds for the property purchase.

Conclusion:

The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection, concluding that the reopening of the assessment was invalid and the addition of undisclosed income was unwarranted. The Tribunal emphasized the importance of tangible evidence and thorough inquiry in substantiating claims of unexplained income.