2019 (11) TMI 334 - AT - Income Tax

Reopening of assessment u/s 147 - addition u/s 68 - borrowed satisfaction - change of opinion after four years - reopening on the basis of the findings in the search action u/s. 132 in the case of Praveen Kumar Jain group, wherein evidence was gathered that a large number of entitites managed and controlled by the Jain Group were engaged in providing accommodation entries and the assessee was a beneficiary in as much as unsecured loans - HELD THAT - AO has made an addition as unexplained cash credit u/s. 68 and simultaneously disallowed interest exclusively on the basis of the information received from the Investigation Wing of the Department that the assessee, through M/s. Kunal Gems, a concern controlled by Shri Praveen Kumar Jain had taken an accommodation entry. Although, the assessee had filed before the AO confirmation of loan of Kunal Gems and bank statements showing loan and repayment, the AO did not examine it. We are of the considered view that the AO should have verified the genuineness of transaction by starting with the confirmation of loan from Kunal Gems filed by the assessee and the bank statements showing loan and repayment. He has not done so. Also we find that the ld. CIT(A) confirmed the addition made by the AO after examining (i)the statement recorded on oath u/s.132(4) dated 01.10.2013 of Shri Praveen Kumar Jain, (ii)the statement of Shri Nilesh Parmar, proprietor of M/s. Mohit International recorded u/s.131 dated 02.10.2013, (iii) note on the findings of search action u/s. 132 by the Investigation Wing of the Department in the case of Shri Praveen Kumar Jain group. The ld. CIT(A) could have remanded the matter to the AO u/s. 250(4) of the Act to make further enquiry before disposing of the appeal. To arrive at a finding without any verification of the transactions, would lead anyone to the realm of pure conjectures. The reliance placed by the ld. DR on the decision in McDowell Co. Ltd 1985 (4) TMI 64 - SUPREME COURT is misplaced as in the instant case the AO has not done any enquiry. It is well-settled that u/s.68, the primary onus as to the receipt of the amount is on the assessee to show the identity of the lenders, their creditworthiness and the genuineness of the transactions. Only where the assessee discharges the burden prima facie, does the burden shift on to the Revenue. In the instant case, the assessee has discharged the burden prima facie by filing the confirmation of loan of Kunal Gems and bank statements showing loan and repayment. An explanation, prima facie reasonable cannot be rejected on capricious or arbitrary grounds or on mere suspicion or on imaginary or irrelevant grounds. We set aside the order of the ld. CIT(A) and delete the addition made by the AO u/s. 68 of the Act and disallowance of interest - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of reassessment under Section 147 after four years based on "change of opinion."
2. Addition of ?10,00,000 as unexplained cash credit under Section 68.
3. Disallowance of ?58,849 as interest payment on the unsecured loan.

Detailed Analysis:

1. Legality of Reassessment under Section 147:

The first issue concerns whether the Assessing Officer (AO) erred in reopening the assessment under Section 147 after four years based on a "mere change of opinion." The assessee argued that this was not permissible as per the Supreme Court's judgment in the case of Kelvinator of India Ltd (320 ITR 561 SC). The AO had reopened the assessment based on information from the Investigation Wing indicating that the assessee had taken an accommodation entry amounting to ?10,00,000 from M/s. Kunal Gems, controlled by Mr. Praveen Kumar Jain. The CIT(A) upheld the AO's action, stating that the assessee failed to disclose true and full material particulars.

The Tribunal observed that the AO had tangible material from the search action under Section 132 in the case of Praveen Kumar Jain group, which indicated that the assessee had not disclosed the accommodation entries. The Tribunal cited the Supreme Court's decision in Phool Chand Bajrang Lal (203 ITR 456 SC), which allows reopening based on subsequent information revealing a bogus transaction. Therefore, the Tribunal upheld the reopening of the assessment, dismissing the first ground of appeal.

2. Addition of ?10,00,000 as Unexplained Cash Credit:

The second issue pertains to the addition of ?10,00,000 by the AO as unexplained cash credit under Section 68. The AO issued a show-cause notice to the assessee, who responded by providing loan confirmation, an affidavit, bank statements, and other relevant documents. The AO, however, was not convinced, as the Jain group was known for providing accommodation entries. The CIT(A) confirmed the addition based on statements recorded during the search action and other findings.

The Tribunal noted that although the assessee provided documentation, the AO did not verify the genuineness of the transactions. The Tribunal emphasized that the primary onus under Section 68 is on the assessee to prove the identity, creditworthiness, and genuineness of the transactions. The assessee had discharged this burden prima facie, but the AO failed to conduct further verification. The Tribunal cited relevant case laws, including Divine Leasing & Finance Ltd., which supports the assessee's case when the AO does not pursue further investigation. Consequently, the Tribunal set aside the CIT(A)'s order and deleted the addition of ?10,00,000.

3. Disallowance of ?58,849 as Interest Payment:

The third issue involves the disallowance of ?58,849 as interest payment on the unsecured loan from M/s. Kunal Gems. The AO disallowed the interest payment, arguing that the loan was an accommodation entry. The CIT(A) upheld this disallowance.

The Tribunal, however, found that the AO had not verified the genuineness of the transaction despite the assessee providing necessary documentation. Given that the primary onus was on the assessee and had been discharged, the Tribunal held that the AO should have conducted further verification. The Tribunal, therefore, deleted the disallowance of ?58,849, aligning with its decision on the unexplained cash credit.

Conclusion:

The Tribunal concluded by partly allowing the appeals. The reassessment under Section 147 was upheld, but the additions of ?10,00,000 and disallowance of ?58,849 were deleted due to the AO's failure to verify the genuineness of the transactions despite the assessee's prima facie evidence. The decision for A.Y. 2008-09 was applied mutatis mutandis to A.Y. 2010-11.