2024 (7) TMI 1089 - AT - Income Tax

Reopening of assessment - credible information received from the Investigation Wing - Addition u/s 68 - assessee is one of the beneficiaries ploughing back its own unaccounted money in the form of share capital and premium - as argued addition was made solely on the basis of the statement of Shri Rajesh Bhutoria, which has been retracted subsequently just two days before passing the assessment order - HELD THAT - AO has not made any independent enquiry of the detailed and voluminous evidences adduced by the assessee. Even the statement so relied upon does not specifically implicate the assessee and it is apparent that the same has been taken in connection with the investigation of one Baazar Group of Companies. Further, the reasons for re opening his full of infirmities and mismatch in the amount and in the name of investors. We are surprised to note that the statement was available with the Department right from November 2014, but till the date of re opening, no enquiry whatsoever to carry out the authenticity of the report of the Investigation Wing as applicable to the present case. CIT(A) has correctly concluded that the entire re assessment has been done out of mere suspicion and is not backed by independent reason to believe by the AO. The statement of Shri Rajesh Bhutoria, cannot be held to be a gospel truth specifically when the same has been retracted before the Metropolitan Magistrate. Even in the remand report, AO has not done any verification to contradict the humongous evidences adduced by the assessee and to challenge its authenticity. Accordingly, the entire addition made by the AO is based on mere surmises and conjectures and has no legal legs to stand upon. Accordingly, we find no merit in the grounds of appeal raised by the Revenue. The re opening was initiated on the basis of barrowed satisfaction and the Assessing Officer could not bring out the live nexus of information leading to re assessment. There are lots of infirmities in the reasons recorded. Certain persons are named. But it is not clear as to how they are connected with the company. The Bank Statement of Adhik Multitrade Pvt. Ltd. was examined. But significantly, the name of such company does not appear in list of four companies mentioned. The reasons only speak of the conclusions and do not bring out independent application of mind. In fact, Aadita Construction Pvt. Ltd., has subscribed shares for ₹ 37 lakh and not ₹ 22 lakh as per reasons. There is no company named Adshaj Multitrade Pvt. Ltd. in the list of shareholders. These glaring observations of the facts are a clear pointer to the fact that basis of re opening is fragile. CIT(A) has correctly decided which needs no interference at our end. Thus, we uphold the order passed by the learned CIT(A) by dismissing the grounds raised by the Revenue.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act.
2. Reopening of the case based on incorrect information.
3. Establishment of identity, creditworthiness, and genuineness of the investors.
4. Denial of cross-examination of the witness.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The Revenue challenged the CIT(A)'s decision holding the notice issued under Section 148 as "ab initio void." The Revenue argued that the case was reopened based on credible information from the Investigation Wing, citing the Supreme Court's decision in Yogendrakumar Gupta. However, the CIT(A) found that the reopening was based on a vague statement by Mr. Bhutoria, which did not specifically name the assessee company. The CIT(A) concluded that the reopening was unjustified and void ab initio, supported by judgments from the Andhra Pradesh High Court and the Kolkata High Court, which emphasized that reopening based on vague or unsupported statements is invalid.

2. Reopening of the Case Based on Incorrect Information:
The CIT(A) noted that the assessment was reopened based on incorrect information, initially alleging an escapement of Rs. 1.47 crores but later assessing it at Rs. 5.60 crores. The CIT(A) observed that the AO did not conduct any independent investigation to verify the allegations and relied solely on the statement of Mr. Bhutoria, which lacked corroborative evidence. The CIT(A) emphasized that reopening based on incorrect or unverified information is unjustified, citing relevant case laws.

3. Establishment of Identity, Creditworthiness, and Genuineness of the Investors:
The assessee provided comprehensive documentation, including PAN cards, income tax returns, bank statements, and audited financial statements of the investor companies, to establish their identity, creditworthiness, and the genuineness of the transactions. The CIT(A) found that the AO did not make any independent inquiries or verify the documents provided by the assessee. The CIT(A) concluded that the assessee had discharged its burden of proof, and the AO's addition under Section 68 was unjustified. The CIT(A) referenced several judgments, including the Delhi High Court's decision in Divine Leasing & Finance Ltd., which outlined the criteria for proving the identity, creditworthiness, and genuineness of transactions.

4. Denial of Cross-Examination of the Witness:
The CIT(A) criticized the AO for denying the assessee the opportunity to cross-examine Mr. Bhutoria, whose statement was heavily relied upon. The CIT(A) noted that the AO's refusal to allow cross-examination violated the principles of natural justice. The CIT(A) cited the Bombay High Court's decision in Paradise Inland Shipping Pvt. Ltd., which held that denying cross-examination amounts to a breach of natural justice and can invalidate the reassessment proceedings.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, finding no merit in the Revenue's appeal. The Tribunal emphasized that the reopening was based on borrowed satisfaction without independent verification, and the addition was made on mere surmises and conjectures. The Tribunal concluded that the reassessment proceedings were invalid, and the addition under Section 68 was unjustified. The appeal filed by the Revenue was dismissed.