2020 (11) TMI 562 - AT - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 - whether there was reason to believe that income has escaped assessment? - HELD THAT - AO was having definite information about the assessee that there is a transfer of a sum of ₹ 4 crores from the account of Mr. Parminder Rana in the bank account of the assessee. It was STR information. Such bank account from where the money has been transferred in the account of the assessee is also found in suspicious transaction report. Therefore it is apparent that information available with the AO was a specific, definite and correct. More so this information is also not denied by assessee himself. Whether this information has any live nexus with escapement of income by the assessee? - Merely receiving a credit in the bank account cannot per se lead to reason to believe of escapement of income. When AO has categorically stated in the reasons recorded for reopening of the assessment that assessee has not disclosed the long-term capital gain/loss incurred by the assessee on sale of those shares, but it is found that assessee has given categorically each item of sale of shares in his revised return of income it cannot be said that the assessee has not disclosed the capital gain in the revised return of income. Had this revised return been examined by the learned assessing officer, it could have been found that assessee has disclosed long-term capital loss on sale of 40 lakhs shares of Sudarshan oversees Ltd in the month of December, 2008 wherein assessee has shown the long-term capital loss of ₹ 1, 23,30,161. AO could have stated that the long-term capital loss shown by the assessee is bogus but that is not the fact coming out from the reasons recorded. In spite of having a material, AO failed to show live nexus with the escapement of income. Whether the AO has applied his mind to the material available or not? - Reason of escapement of income is based on the fact that assessee was director of Willey Agrotech Ltd (sudarshan Consolidated Ltd) up to December 2008 and thereafter its President is found to be incorrect. Another fact that assessee has not disclosed the transaction of the sale of those shares in its revised return of income is also found to be incorrect. The third presumption that assessee has not filed the balance sheet wherein the holding of the shares is not available is also not supported by the law as there was no requirement of preparing balance sheet by the assessee, but, the holding was shown to have been owned by the assessee from the annual return of the investee company and further with all the assertions made by the assessing officer for reopening of the assessment are not supported by any evidence. We hold that despite having information AO has failed to record a reason that there is an escapement of income and further failed to apply his mind on the facts available in the revised return as well as with respect to the directorship of the assessee in Willey Agrotech Ltd. - there is no reason to believe is demonstrated by the learned assessing officer in the reasons recorded for reopening of the assessment - Decided in favour of asseessee. Assessee has explained the source of the source of funds available with buyer which is paid to the assessee, supported by the fact of the existence of the assets, its transfer to the buyer by assessee. In view of this the addition made by the learned assessing officer u/s 68 and sustained by the learned CIT A is not tenable. - Decided in favour of assessee.

Issues Involved:
1. Legality of the order passed by the CIT (A).
2. Violation of the principle of natural justice.
3. Rejection of additional evidences by the CIT (A).
4. Rejection of additional grounds of appeal regarding reopening of assessment u/s 147 and 148.
5. Validity of the notice issued u/s 148.
6. Validity of the reasons recorded for issuance of notice u/s 148.
7. Jurisdictional issue due to different officers recording reasons and issuing notice u/s 148.
8. Addition of ?4 crores u/s 68 of the IT Act.
9. Applicability of Section 68 to the case.
10. Genuineness of the transaction of ?4 crores for the sale of shares.
11. Set-off of the addition against the loss incurred on the sale of shares.
12. Incorrect observations by the AO and CIT (A).
13. Consideration and interpretation of evidence/submissions.

Issue-wise Detailed Analysis:

1. Legality of the Order Passed by the CIT (A):
The appellant contended that the order dismissing the appeal was illegal and bad in law. However, the tribunal found no merit in this general ground, as the specific issues were addressed separately.

2. Violation of the Principle of Natural Justice:
The appellant argued that the CIT (A) did not provide sufficient opportunity for being heard, violating the principle of natural justice. The tribunal found no merit in this ground as the appellant was granted proper opportunities for hearing.

3. Rejection of Additional Evidences by the CIT (A):
The appellant claimed that the CIT (A) erred in rejecting additional evidences that went to the root of the case. The tribunal did not adjudicate this ground separately, as the issues on merits were addressed comprehensively.

4. Rejection of Additional Grounds of Appeal Regarding Reopening of Assessment u/s 147 and 148:
The appellant argued that the CIT (A) erred in rejecting additional grounds challenging the reopening of assessment. The tribunal admitted these additional grounds, stating that reopening of assessment is a jurisdictional issue that goes to the root of the matter.

5. Validity of the Notice Issued u/s 148:
The appellant contended that the notice issued u/s 148 was illegal, bad in law, and without jurisdiction. The tribunal examined whether there was "reason to believe" that income had escaped assessment. It found that the reasons recorded by the AO were factually incorrect and based on irrelevant facts, leading to the conclusion that the reopening of assessment was invalid.

6. Validity of the Reasons Recorded for Issuance of Notice u/s 148:
The tribunal found that the reasons recorded by the AO for reopening the assessment were incorrect. The AO stated that the appellant was a director of Willey Agrotech Ltd till December 2008 and thereafter the President, which was factually incorrect. The AO also failed to consider the revised return filed by the appellant, which disclosed the capital loss on the sale of shares. Therefore, the tribunal held that the AO did not have a valid reason to believe that income had escaped assessment.

7. Jurisdictional Issue Due to Different Officers Recording Reasons and Issuing Notice u/s 148:
The appellant argued that the reasons were recorded by one officer and the notice u/s 148 was issued by a different officer, making the notice illegal and without jurisdiction. The tribunal did not specifically address this issue, as it had already quashed the reopening of assessment on other grounds.

8. Addition of ?4 Crores u/s 68 of the IT Act:
The appellant contended that the addition of ?4 crores u/s 68 was illegal and should be deleted. The tribunal found that the appellant had provided sufficient evidence to explain the source of the ?4 crores received for the sale of shares. The money trail was clearly demonstrated, and the transaction was found to be genuine and bona fide. Therefore, the addition u/s 68 was not sustainable.

9. Applicability of Section 68 to the Case:
The tribunal held that Section 68 could not be applied to the present case, as the appellant had furnished sufficient evidence to prove the genuineness of the transaction and the creditworthiness of the buyer.

10. Genuineness of the Transaction of ?4 Crores for the Sale of Shares:
The appellant provided evidence showing the sale of shares, the receipt of consideration, and the subsequent subdivision of shares by the buyer. The tribunal found the transaction to be genuine and bona fide, rejecting the AO's claim that it was a bogus transaction.

11. Set-off of the Addition Against the Loss Incurred on the Sale of Shares:
The appellant argued that the addition of ?4 crores should be allowed to be set-off against the loss incurred on the sale of shares. The tribunal did not specifically address this issue, as it had already found the addition u/s 68 to be unsustainable.

12. Incorrect Observations by the AO and CIT (A):
The appellant contended that the observations made by the AO and CIT (A) were incorrect, unjust, and based on mere surmises and conjectures. The tribunal found that the AO's reasons for reopening the assessment were factually incorrect and not supported by evidence.

13. Consideration and Interpretation of Evidence/Submissions:
The appellant argued that the evidence and submissions were not properly considered and judicially interpreted. The tribunal found that the appellant had provided sufficient evidence to explain the source of the ?4 crores and the genuineness of the transaction, leading to the conclusion that the addition u/s 68 was not sustainable.

Conclusion:
The tribunal quashed the reopening of the assessment and held that the addition of ?4 crores u/s 68 was not tenable. The appeal of the appellant was partly allowed.

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