2018 (2) TMI 861 - AT - Income Tax

Reopening of assessment - addition on account of unexplained investment - addition on the basis of non-appearance of some of the persons before the AO - Held that - Observation of CIT(A) indeed does not state that the sources are totally bogus and AO was in fact, asked to make further enquiries. Prima-facie the report of the Inspector does indicate that many of the people are existing and they have lands. Even though the Inspector seems to have issued summons to them to appear, the verification of the names of creditors with the names to whom summons were issued indicate that there are certain mismatches. For example, the first name Bunga Padma Pedapatnam was not shown as creditor in the case of assessee. How summons could be issued to such person could not be examined. We are unable to understand how the conclusions were drawn just on the basis of non-appearance of some of the persons before the AO at Hyderabad, when ITI s field enquiry revealed that they are existing and they have lands in their name. Some of the persons also reported to have been died by the time enquiries were conducted. Since so much time has lapsed and the affidavits furnished dt. 25- 10-2007 have not been disproved, the contentions of assessee in this regard has merit. Revenue wrongly relied on the reports in the case of company and on the order of CIT(A), Bhubaneswar and has not made any serious enquiry in assessee case to disprove the credits claimed. Thus direct the AO to accept the credits as such, as genuine. For reopening of assessment is to be placed on record that the contentions on the issue have merit. First of all, assessee has disclosed the investment and enclosed the confirmations to the original return which was accepted. There was a direction by Addl. CIT, Range-11 to reopen the assessment. Another offer (whose jurisdiction is not examined) has issued the notices, even though assessee was assessed earlier. The reasons for reopening were not communicated violating the directions of Hon ble Supreme Court in the case of GKN Drive Shaft 2002 (11) TMI 7 - SUPREME Court - Decided in favour of assessee

Summary

Issues Involved:

1. Validity of reopening of assessment under Section 147.
2. Addition of ?18,00,100/- as unexplained investment under Section 69.
3. Treatment of the amount as unexplained cash credit under Section 68.

Detailed Analysis:

1. Validity of Reopening of Assessment Under Section 147:

The assessee argued that the reopening of the assessment was bad in law. The original return filed on 21-10-1999 disclosed the investment of ?21,50,100/- in M/s. Sankhya Infotech Ltd. and included confirmation letters for the loans raised. The return was processed under Section 143(1) without scrutiny. A notice under Section 148 was issued on 11-03-2005, based on a report from JCIT, Bhubaneswar, suggesting income had escaped assessment.

The assessee contended that the reasons for reopening were not communicated, which is a violation of the Supreme Court's directive in GKN Drive Shaft [259 ITR 19] (SC). The assessment was reopened based on borrowed satisfaction from the report of JCIT, Bhubaneswar, without any fresh tangible material. The tribunal found merit in the assessee's contentions, noting that the reasons for reopening were not communicated and that the reopening itself was bad in law.

2. Addition of ?18,00,100/- as Unexplained Investment Under Section 69:

The AO added ?18,00,100/- as unexplained investment, noting that the assessee had invested ?21,50,100/- in M/s. Sankhya Infotech Ltd., with ?3,50,000/- from savings and ?18,00,100/- from loans raised. The AO doubted the genuineness of the loans from agriculturists and treated the amount as the assessee's income.

The assessee argued that the investment and sources were disclosed in the original return, along with confirmation letters. The CIT(A), Bhubaneswar, in the company's appeal, had deleted the addition, stating that the sources of the loans were not conclusively established as bogus. The tribunal found that the AO and CIT(A) relied on the earlier reports without making serious enquiries in the assessee's case. The tribunal directed the AO to accept the credits as genuine.

3. Treatment of the Amount as Unexplained Cash Credit Under Section 68:

The CIT(A) erroneously confirmed the addition under Section 68, treating it as unexplained cash credit, despite the assessee discharging the onus under Section 68. The tribunal noted that the CIT(A) relied on the order of CIT(A), Bhubaneswar, which did not conclusively establish the loans as bogus. The tribunal found that the AO and CIT(A) did not conduct serious enquiries and directed the AO to accept the credits as genuine.

Conclusion:

The tribunal allowed the appeal, holding that the reopening of the assessment was bad in law and the addition of ?18,00,100/- as unexplained investment under Section 69 was not justified. The tribunal directed the AO to accept the credits as genuine. The order of the AO and CIT(A) was set aside.