2025 (4) TMI 28 - AT - Income Tax

Validity of reopening assessments u/s 147 - information received from the Investigation Wing about bogus accommodation entries - onus to prove - as alleged assessee has taken bogus share application / premium from shell / dummy / paper companies and introduced his own unaccounted cash by routing it through a web of dubious companies and suspicious transactions - CIT(A) quashed reopening proceedings - HELD THAT - Reasons reveals that the ld. AO based on the information received from the DDIT who searched the Banka Group noted that the assessee is one of the beneficiary who has taken accommodation entry in the form of bogus unsecure loans or in other form from the following dummy or shell companies which are controlled or managed by Shri Mukesh Banka. Against those reasons the assessee objected before the ld. AO that they have not obtained any unsecured loans as alleged in the reasons recorded but in fact companies referred subscribed to its share capital for which the necessary verification has been done and accordingly assessment has already been completed on 27.03.2014 and therefore the said issue again cannot be taken up as settled by the legal precedent. The fact that ld. AO mentioned unsecured loan in the reasons for reopening shows that he mechanically issued notice under section 148 of the Act based on information allegedly received by him from the Directorate of Income Tax (Investigation) without proper application of mind and independent analysis and investigation even though all the information was available on record. The assessee contended that in the scrutiny assessment which was completed u/s 143(3) on 27.03.2014 in the case of the appellant for the A.Y 2012-13 wherein all the information related to the share capital had been provided by the appellant and after due application of mind the assessment order was passed. Even though ld. AR of the assessee contended before the ld. CIT(A) that the reasons were recorded for unsecured loans and additions were made for share capital and therefore ld. CIT(A) following our jurisdictional High Court s order in the case of Ram Singh 2008 (5) TMI 200 - RAJASTHAN HIGH COURT quashed the assessment. While doing so ld. CIT(A) has also followed the other judgments on the same issue. Before us since there was no contrary judgment serviced by the revenue we do not find infirmity in that finding of the ld. CIT(A). Addition u/s 68 - As regards the share application money / share capital the apex court in the case of Lovely Exports 2008 (1) TMI 575 - SC ORDER come at the rescue of the assessee on the merits because to prove the identity creditworthiness and genuineness of the transaction the assessee has placed on record copy of Form of application for equity shares copy of board resolution by the company for investment in the assessee-appellant copy of bank statement copy of ITR for the year under consideration and earlier year copy of financial statement of the investor company. Copies of bank statements evidencing the investment of share application money through banking channels. Thus the assessee discharged its onus as per provision of section 68 of the IT Act. Now onus is on AO to disprove the genuineness of the investments on that aspect except statement of Shri Mukesh Banka no contrary material placed on record. Further the AO did not point out any specific instance or any information in the statements recorded by the Investigation Wing in the case of Shri Mukesh Banka which reveals the alleged involvement of assessee in taking accommodation entries. In the absence of any specific information about the assessee against the evidence on record it is not correct to make addition merely on the basis surmises and presumptions on a statement of the third party. The evidence placed on record clearly proves the identity capacity and genuineness of the transactions were proved and thus the criteria as prescribed in section 68 has been fulfilled and it does not warrant the source of source to be proved. The decision cited by the ld. AO does not match with the facts of the case. Decided in favour of assessee. Addition of unsecured loan amount u/s 68 - CIT(A) deleted addition - A.Ys. 2014-15 to 2016-17 - HELD THAT - Here it is a matter of fact that the assessee appellant has repaid back within a very short duration all the questioned loan. When loan stands repaid no addition under Section 68 can be made and is held by the judgment of Hon ble Gujarat High Court in case of Rohini Builders 2000 (9) TMI 204 - ITAT AHMEDABAD-B wherein held genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques. Importantly we note that the revenue challenges the only deletion of loan amount but not the deletion of so-called Commission Paid by the assessee Interest paid by the ld. CIT(A). Thus the appeal of the revenue itself is contradictory accepted that the fact interest paid by the assessee is genuine than how can the loan cannot. As regards the enquiry with third parties made by the ld. AO by issuing notices u/s 133(6) and by making field inquiries (by sending Inspector) in the name of such companies however as no reply was received from such parties adverse inference was drawn. Also it is mentioned that summons was issued to directors of above entities u/s 131 131(d). We note that on this issue the assessee - appellant was not confronted with regard to non-service or non-compliance of summon nor the Inspector s report as mentioned in Assessment order was ever supplied to the assessee- appellant. As is clear from the judicial precedent cited that noncompliance to notices u/s 133(6) or 131 of the Act by itself is not sufficient to draw an adverse inference. The bench also take into consideration that the whole basis is of the search in Bank group and the information in the form of statement received from the statement of Shri Mukesh Banka who stated in a statement about the accommodation entry business. That statement of Shri Mukesh Banka was retracted and the copy of the retraction statement was also filed before us. Thus the very basis upon which the addition was called for has been retracted no adverse inference be drawn. Thus even on this aspect of the matter we get support of our jurisdictional High Court decision in the case of PCIT Vs. M/s. Esspal International P. Ltd. 2024 (9) TMI 652 - RAJASTHAN HIGH COURT wherein held that the merely based on the retracted statement no addition can be made. Thus no infirmity in the order of the ld. CIT(A) while deleting the addition of unsecured loan which is under challenge by the revenue. With this discussion the appeal of revenue stands dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The primary issues considered in this judgment revolve around the validity of the reopening of assessments under Section 147 of the Income Tax Act, 1961, and the subsequent additions made by the Assessing Officer (AO) under Section 68 for unexplained cash credits. The core questions include:

• Whether the reopening of assessments under Section 147 was justified based on new information from search proceedings.
• Whether the additions made under Section 68 for unsecured loans were valid, considering the evidence provided by the assessee.
• Whether the reliance on statements from third parties, such as Mukesh Banka, was appropriate, especially when such statements were retracted.
• Whether the procedural aspects, such as the issuance of notices under Sections 133(6) and 131, were adequately addressed.

2. ISSUE-WISE DETAILED ANALYSIS

Reopening of Assessments under Section 147:

• Legal Framework: Section 147 allows the AO to reassess income if there is "reason to believe" that income has escaped assessment. This requires new tangible material or information.
• Court's Interpretation: The court upheld the reopening, noting that new information from the search on the Banka Group provided a valid basis for reopening.
• Key Evidence: The AO relied on statements from Mukesh Banka and findings from the search, which indicated accommodation entries.
• Competing Arguments: The assessee argued that the reopening was based on borrowed satisfaction and lacked independent application of mind. The court found that the AO had sufficient new material to justify reopening.

Additions under Section 68 for Unsecured Loans:

• Legal Framework: Section 68 requires the assessee to prove the identity, creditworthiness, and genuineness of cash credits.
• Court's Interpretation: The court found that the assessee had provided sufficient evidence, including bank statements, ITRs, and financial statements, to establish the genuineness of the transactions.
• Key Evidence: The assessee submitted detailed documentation for each loan, including confirmations and bank statements.
• Competing Arguments: The AO argued that the entities were shell companies, based on non-compliance with notices and statements from Mukesh Banka. The court found that the retraction of Mukesh Banka's statement and the lack of direct evidence against the assessee undermined these claims.

Reliance on Third-Party Statements:

• Legal Framework: Statements made under oath during search proceedings carry evidentiary value but can be challenged if retracted.
• Court's Interpretation: The court noted that the retraction of Mukesh Banka's statement weakened its credibility as evidence.
• Competing Arguments: The revenue relied heavily on Mukesh Banka's statement, while the assessee highlighted its retraction and lack of opportunity for cross-examination.

Procedural Aspects:

• Legal Framework: Compliance with procedural requirements, such as issuing notices under Sections 133(6) and 131, is crucial for the validity of assessments.
• Court's Interpretation: The court found that the AO's failure to provide the assessee with the opportunity to address non-compliance with notices undermined the procedural fairness of the assessment.
• Competing Arguments: The assessee argued that the lack of communication regarding non-compliance with notices and the failure to provide the Inspector's report violated principles of natural justice.

3. SIGNIFICANT HOLDINGS

Core Principles Established:

• The reopening of assessments under Section 147 requires new tangible material, and mere suspicion or borrowed satisfaction is insufficient.
• For additions under Section 68, the assessee must provide credible evidence of the identity, creditworthiness, and genuineness of transactions. The burden shifts to the revenue if the assessee discharges this initial onus.
• Statements recorded during search proceedings hold evidentiary value but must be corroborated by additional evidence, especially if retracted.
• Procedural fairness, including the opportunity to address non-compliance with statutory notices, is essential for valid assessments.

Final Determinations:

• The court upheld the reopening of assessments under Section 147 based on new material from the search on the Banka Group.
• The court deleted the additions made under Section 68, finding that the assessee had provided sufficient evidence to establish the genuineness of the transactions.
• The reliance on Mukesh Banka's retracted statement was deemed insufficient to support the additions, given the lack of corroborative evidence.
• The court emphasized the need for procedural fairness, noting the AO's failure to communicate non-compliance with notices to the assessee.