2025 (2) TMI 46 - AT - Income Tax

Reopening of assessment u/s 147 - notice issued beyond period of four years - Addition u/s 69C - unexplained expenditure on presumption that assessee had paid commission @ 2.5% for obtaining such accommodation entry - HELD THAT - In case of Haryana Acrylic Manufacturing Co. 2008 (11) TMI 2 - DELHI HIGH COURT it was held that notice u/s 148 giving reason that it had come to his notice that assessee had taken accommodation entries from H during relevant year when assessee in course of original assessment proceedings had supplied all relevant details; in assessment order which were verified and moreover in reasons supplied to assessee there was no allegation that it had failed to disclose fully and truly all material facts necessary for assessment and because of its failure there had been an escapement of income chargeable to tax reopening of assessment after expiry of four years from end of relevant assessment year was without jurisdiction. Hence it is felt that since there was no independent application of mind neither by AO while initiation of reassessment proceedings by issue of notice u/s 148 nor by CIT(A) 4 Jaipur while deciding the issue under consideration. They simply proceeded on borrowed satisfaction reached by some other officials and even without making any enquiry before reaching to the conclusion of escapement of income which is apparent from the perusal of the reasons where no specific transaction with any of the company alleged as paper companies is specifically mentioned and on general observations that no such transaction was shown by the assessee and no tax was paid on such transaction the case was reopened. Hence in this view of the matter we do not concur with the findings of the ld CIT(A) and this issue raised by the ld. AR of the assessee is allowed. Addition u/s 68 - assessee had paid cash and in turn received accommodation entry - As during the course of reassessment proceedings as well as in the present submission that the amounts received from these two companies is against the sales made to them in preceding years and AO while recording the reasons has alleged the same as the assessee s own money routed through RTGS in the shape of accommodation entries and while completing the assessment changed his stand from unsecured loan to share application money without any basis or material brought on record to allege the same more particularly when no amount whatsoever was received by the assessee as share application money in the year under appeal as is clearly evident from the perusal of the financial statements of the assessee company available with the AO. We also noticed that AO has further alleged that assessee could not provide evidences regarding transportation of goods from its place to the destination companies. As submitted that assessee not only furnished ledger copies of both the parties but also furnished copies of invoices which contained the necessary details of transporters and details of vehicle through which goods were transported but the AO brushed aside the same without any cogent reason. We find that it is a matter of fact that the AO made addition by relying upon the information received from Investigation Unit and some enquiries made without even providing assessee an opportunity to cross examine. CIT(A) has confirmed the additions so made by AO by solely relying upon the information of Investigation wing. Hence the bench noticed that addition confirmed by ld. CIT(A) is contrary to the facts on record and is against the principle of taxation whereas assessee has substantiated its claim by furnishing all the necessary documentary evidences therefore the Bench does not concur with the findings of the ld. CIT(A) and addition so sustained is directed to be deleted. Thus ground of the assessee is allowed. Unsecured loan / share application money - Uncontroverted fact that the sales were made to these two parties in preceding year and assessee has received outstanding amount in the year under appeal. It was also submitted that sale made by assessee in F.Y. 2011-12 is completely genuine as has been stated in ground of appeal No. 2 above and assessee has not taken any loan/share capital as has been alleged. Thus no question of any commission payment. Secondly the ld. AR submitted that this addition also is solely based upon the information received from third party absolutely uncorroborated in much as there is no material available on record to rebut the documentary evidences furnished by assessee. It is therefore submitted that the addition so confirmed by CIT(A) are on the basis of assumptions and presumptions deserves to be deleted.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the reopening of the assessment under Section 147 of the Income Tax Act, 1961, was justified, given the original assessment was completed under Section 143(3).
• Whether the additions made under Section 68 for unexplained share application money and under Section 69C for alleged commission expenses were legally sustainable.
• Whether the procedural requirements, particularly the disposal of objections to the reopening of the assessment, were adequately addressed.

2. ISSUE-WISE DETAILED ANALYSIS

Reopening of Assessment under Section 147:

• Relevant Legal Framework and Precedents: The reopening of assessments is governed by Section 147, which requires a "reason to believe" that income has escaped assessment. The proviso to Section 147 restricts reopening beyond four years unless there is a failure to disclose fully and truly all material facts by the assessee.
• Court's Interpretation and Reasoning: The Tribunal noted that the reopening was based on information from the Investigation Wing regarding alleged accommodation entries. However, the Tribunal found procedural lapses, particularly the failure of the Assessing Officer (AO) to dispose of the assessee's objections to the reopening, which is a mandatory requirement as per the Supreme Court's decision in GKN Driveshafts (India) Ltd.
• Key Evidence and Findings: The Tribunal observed that the AO did not provide a specific bifurcation of amounts received from alleged shell companies and failed to address the objections raised by the assessee.
• Application of Law to Facts: The Tribunal applied the proviso to Section 147, emphasizing the lack of any specific material fact that was not disclosed by the assessee, thus questioning the validity of reopening beyond four years.
• Treatment of Competing Arguments: The Tribunal considered the Department's argument that the reopening was justified due to non-disclosure but found it unsubstantiated due to procedural lapses.
• Conclusions: The Tribunal concluded that the reopening was not justified due to the failure to dispose of objections and lack of new material evidence.

Additions under Sections 68 and 69C:

• Relevant Legal Framework and Precedents: Section 68 requires the assessee to explain the nature and source of any credit entry in their books, while Section 69C concerns unexplained expenditure.
• Court's Interpretation and Reasoning: The Tribunal found that the AO's addition under Section 68 was based on a mischaracterization of the nature of transactions, which were actually sales receipts from the previous year, not share application money or loans.
• Key Evidence and Findings: The Tribunal noted that the sales in question were accepted in the previous assessment year, and the amounts received were merely recoveries from debtors.
• Application of Law to Facts: The Tribunal applied the principles laid out in judicial precedents, emphasizing the need for the AO to substantiate claims with evidence, which was lacking in this case.
• Treatment of Competing Arguments: The Tribunal dismissed the Department's reliance on the NRA Iron & Steel Pvt. Ltd. case, as the facts were distinguishable.
• Conclusions: The Tribunal deleted the additions under Sections 68 and 69C, finding them unsustainable.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal emphasized that "the requirement of disposing off the objections against the notice issued under section 148 by a separate and speaking order is a mandatory requirement in view of the judgment of the Hon'ble Supreme Court in case of GKN Driveshafts (India) Ltd. vs. ITO."
• Core Principles Established: The necessity of following due process in reopening assessments, including the disposal of objections, and the requirement for the AO to substantiate claims with concrete evidence.
• Final Determinations on Each Issue: The Tribunal allowed the appeal, quashing the reopening of the assessment and deleting the additions made under Sections 68 and 69C.