2021 (4) TMI 1192 - AT - Income Tax

Reopening of assessment u/s 147 - addition u/s 68 on account of unexplained cash credit and u/s 69C on account of unexplained expenditure - HELD THAT - As decided in SHRI UDIT KUMAR DUGAR 2019 (5) TMI 430 - ITAT KOLKATA from a reading of the reasons recorded by AO to justify re-opening of assessment, clearly show that the AO has taken note of the information from the DIT(Inv.) and taken the contents of the information given by DIT (inv) as gospel of truth against the assessee without any verification or enquiry to form a conclusion about escapement of income without independent application of mind by himself is nothing but an action taken by AO based on the strength of borrowed belief of DIT (inv) and not that of AO, which vitiates the very assumption of jurisdiction by AO to re-open the assessment, which finding of us will be clear when we analyze the reasons recorded in detail infra. From the aforesaid reasons recorded by AO it is evident that other than the general information given by DIT (inv) there is no other material the AO collected himself after preliminary enquiry which could have enabled him at the time of recording reasons to come to a conscious independent conclusion that income of the assessee has escaped assessment . According to us, the information given by DIT(Inv) can only be a basis to ignite/trigger and be the starting point to enquire; and at that stage the information of DIT (Inv.) can be termed as a foundation only to form reason to suspect and not reason to believe escapement of income which is the jurisdictional fact law required to enable the AO to successfully assume jurisdiction to reopen as envisaged u/s. 147 of the Act. And the reason to suspect cannot be the basis for usurping jurisdiction to reopen u/s. 147 of the Act, for conducting roving/further examination to be resorted by him in order to strengthen the suspicion to an extent which can later transform the suspicion to create the belief in his mind that income chargeable to tax has escaped assessment. Merely on an allegations levelled by DIT (Inv.), as in this case explaining the general modus operandi carried out by un-scrupulous persons in suspected transactions to earn bogus LTCG, can only raise suspicion in the mind of the AO (which fact we have pointed out earlier) which is not sufficient/requirement of law for reopening of assessment. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the reopening of assessment under Section 147 of the Income Tax Act.
2. Addition of ?8,30,797 as alleged cash credit instead of treating it as Long Term Capital Gain exempt under Section 10(38).
3. Addition of ?4,154 under Section 69C as alleged unexplained expenditure.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 147 of the Income Tax Act:
The primary issue raised by the assessee was the validity of the reopening of the assessment under Section 147. The assessee contended that the reopening was invalid as it was based solely on the information from the Directorate of Income Tax (Investigation), Kolkata, without any independent application of mind by the Assessing Officer (AO). The Tribunal examined the reasons recorded by the AO for reopening the assessment, which stated that the assessee had traded in shares of Concrete Credit Ltd., a penny stock company, and had claimed Long Term Capital Gain (LTCG) which was suspected to be bogus. The Tribunal found that the AO had merely relied on the investigation report from the DIT(Inv.) without conducting any independent enquiry or verification. Citing a similar case (Shri Udit Kumar Dugar), the Tribunal held that the AO's action was based on "borrowed belief" from the DIT(Inv.) and not on an independent application of mind. Consequently, the Tribunal quashed the assessment made under Section 147/143(3) as invalid.

2. Addition of ?8,30,797 as Alleged Cash Credit:
The AO had added ?8,30,797 to the total income of the assessee under Section 68, treating it as unexplained cash credit instead of LTCG. The AO's decision was based on the investigation report which suggested that the transactions in shares of Concrete Credit Ltd. were part of a modus operandi to claim bogus LTCG. The CIT(A) confirmed this addition, finding the transactions to be unnatural and suspicious. However, since the Tribunal quashed the reopening of the assessment, this issue became infructuous and was not adjudicated further.

3. Addition of ?4,154 under Section 69C as Alleged Unexplained Expenditure:
The AO had also made an addition of ?4,154 under Section 69C, treating it as unexplained expenditure for procuring the alleged bogus LTCG. This addition was also confirmed by the CIT(A). Similar to the previous issue, the Tribunal did not find it necessary to adjudicate this issue due to the quashing of the reopening of the assessment.

Conclusion:
The Tribunal allowed the appeal of the assessee, primarily on the grounds that the reopening of the assessment under Section 147 was invalid. Since the reopening itself was quashed, the other issues regarding the additions under Sections 68 and 69C became academic and were not adjudicated. The appeal was thus decided in favor of the assessee.