2018 (9) TMI 1301 - AT - Income Tax

Reopening of assessment - addition u/s 68 - addition is made because the entries contained in the pen-drive have not been entered into the books of account of the assessee-company despite the entries have no co-relation with the assessee-company - Held that - It is an admitted fact that alleged pen-drive was recovered during the search from the possession of Shri Chetan Gupta by Punjab Vigilence Bureau on the reasons that Shri Chetan Gupta was keeping the black money earned by Capt. Amarinder Singh, Chief Minister of Punjab. The Department has also proceeded against Shri Chetan Gupta in various assessment years on the basis of the entries contained in the pen-drive recovered from him. The Tribunal decided several appeals of Shri Chetan Gupta and finally the appeal of Shri Chetan Gupta was decided 2018 (6) TMI 957 - ITAT DELHI wherein addition on account of peak credit confirmed. All the entries in the pen-drive were considered for calculating the peak credit entries in the hands of Shri Chetan Gupta and as such Learned Counsel for the Assessee has rightly contended that when the peak credit has been considered entirely in the hands of Shri Chetan Gupta, there were no question of making any addition against the assessee-company. Further, Shri Chetan Gupta has not made any statement against the assessee-company, if any entries belong to the assessee-company. Nothing is brought on record in this regard. A.O. has failed to establish as to how assessee-company has incurred the expenses. The assessee-company has not debited any expenditure in the profit and loss account and also did not claim deduction of the same in its books of account. How the entries in the pen-drive were connected with the assessee-company have also not been established. It, therefore, appears that A.O. did not apply his mind to the alleged pen-drive before initiating the re assessment proceedings in the matter. Thus, there is absence of link between alleged tangible material and formation of belief. At the most, it could be inferred that the belief of the A.O. was based on mere imagination, speculation and suspicion. Therefore, it is not a fit case for initiation of reassessment proceedings under section 147/148 - Decided in favour of assessee.

Summary

Issues Involved:
1. Initiation of re-assessment proceedings under section 148 of the Income Tax Act, 1961.
2. Addition of ?2,21,00,788/- as unexplained credit under section 68 of the Income Tax Act, 1961.
3. Cancellation of penalty imposed by the Assessing Officer.

Detailed Analysis:

1. Initiation of Re-assessment Proceedings under Section 148:
The assessee-company challenged the initiation of re-assessment proceedings under section 148, arguing that there was no material to justify the reopening. The original return was filed on 27.10.2005, and a notice under section 148 was issued on 29.03.2012 based on information from a pen-drive recovered from Shri Chetan Gupta, a director of the company. The pen-drive allegedly contained ledger accounts indicating undisclosed financial transactions. However, the assessee-company contended that the pen-drive had no relevance to its affairs and that Shri Chetan Gupta had denied ownership of the pen-drive during his income tax proceedings. The Tribunal concluded that the Assessing Officer (A.O.) did not apply his mind to the alleged pen-drive before initiating re-assessment proceedings, leading to a lack of tangible material connecting the assessee-company with escapement of income. Consequently, the Tribunal quashed the reopening of the assessment.

2. Addition of ?2,21,00,788/- as Unexplained Credit under Section 68:
The A.O. added ?2,21,00,788/- as unexplained credit in the hands of the assessee-company under section 68, based on entries in the pen-drive. The assessee-company argued that the entries in the pen-drive had no correlation with its accounts and were not found in its books of account. The Tribunal noted that the pen-drive was recovered from Shri Chetan Gupta, and the entries had already been considered for calculating peak credit in his hands. The Tribunal referred to its previous decisions in the case of Shri Chetan Gupta, where it was held that the entries in the pen-drive belonged to him. Therefore, the Tribunal concluded that no addition could be made in the hands of the assessee-company, as the entries had already been accounted for in Shri Chetan Gupta's case. The Tribunal set aside the orders of the authorities below and deleted the addition of ?2,21,00,788/-.

3. Cancellation of Penalty Imposed by the Assessing Officer:
The Revenue appealed against the cancellation of penalty imposed on the assessee-company. The Ld. CIT(A) had cancelled the penalty, relying on the Tribunal's decision in the case of Shri Chetan Gupta, which held that the same amounts could not be assessed as income in the hands of the assessee-company. Since the Tribunal quashed the re-assessment proceedings and deleted the addition on merit, it upheld the Ld. CIT(A)'s decision to cancel the penalty. Consequently, the Tribunal dismissed the Revenue's appeal.

Conclusion:
The Tribunal allowed the appeal of the assessee-company, quashing the re-assessment proceedings and deleting the addition of ?2,21,00,788/-. The Tribunal also dismissed the Revenue's appeal, upholding the cancellation of the penalty imposed on the assessee-company.