2024 (7) TMI 1642 - AT - Income Tax

Unaccounted income - amount introduced by way of bogus sale of the property and accommodation entry received by the assessee on account of bogus share transaction - reopening of assessment - HELD THAT - Assessee had entered into a Joint Development Agreement ( JDA ) with the said 41 persons and further that the litigation was going on in the Civil Court and subsequently in the High Court relating to the said JDA entered into by the assessee with the aforesaid 41 persons. A factual finding has been given in the said order that the assessee had duly explained the source of the payment and which was found satisfactory. Not only this the assessee has made another payment to Shri Nirmal Mukherjee and other source of which was duly explained before the competent authority and after consideration of the entire facts and circumstances the proceedings under Prohibition of Benami Property Transactions Act 1988 were dropped against the assessee. The observation of the AO not only in the reasons recorded but also in the assessment order that the assessee has sold the property in question by way of sham transaction and further the assessee has introduced his own money through the 41 persons and has sold its own property and thereafter itself became the Benami beneficial owner of the property is factually wrong and false. There is no application of mind by the Assessing Officer to the facts and circumstances of the case. Not only the reopening of the assessment is bad in law but also the addition on merits is not sustainable in the eyes of law. In view of this the impugned addition of Rs.2, 94, 13, 031/- made by the Assessing Officer alleging that the amount introduced by way of bogus sale of the property by the assessee is ordered to be deleted. Accommodation entry received - The only allegation written in the reasons recorded for reopening of the assessment is that the assessee had received the said amount from one M/s Raghuvir Sales Pvt. Ltd. Mere receipt of an amount without any information or evidence to form the belief that the said amount is unaccounted/escaped income of the assessee would not constitute reasons to believe of escapement of income for the purpose of reopening of the assessee u/s 147 of the Act. Each and any receipt cannot constitute income. There is nothing mentioned in the reasons recorded that the said receipt and in what manner and on what account can be believed to be an escaped of income of the assessee for the year under consideration. In the assessment order the AO has mentioned that the said amount has been received by the assessee on account of bogus share transactions. There is no mention in the assessment order about the details of such transactions as to for what amount the assessee has purchased or sold the shares of or to which company from whom the same was purchased and to whom the same was sold whereas assessee has filed the reply to the show-cause notice issued by the AO wherein it has been explained that the aforesaid amount was on account of unsecured loans which was repaid during the financial year under consideration itself along with interest and TDS also deducted thereupon. Appeal of the assessee stands allowed.

Summary

The core legal questions considered by the Tribunal in this appeal pertain to the validity of the reopening of the assessment under section 147 of the Income Tax Act, 1961, the legality and correctness of additions made to the assessee's income on account of alleged bogus property sale transactions and unexplained loan credits, and the correctness of the order passed by the National Faceless Appeal Centre (CIT(A)) dismissing the appeal without adjudicating on merits.

Issue 1: Whether the reopening of the assessment under section 147 read with section 144 of the Income Tax Act, 1961, was valid and justified in the facts and circumstances of the case.

Issue 2: Whether the addition of Rs.2,94,13,031/- as unaccounted income on account of alleged bogus sale of property is sustainable in law and on facts.

Issue 3: Whether the addition of Rs.26,00,000/- on account of alleged unexplained loan credits is justified under section 68 of the Income Tax Act, 1961.

Issue 4: Whether the order passed by the National Faceless Appeal Centre dismissing the appeal ex-parte without dealing with the merits was legally sustainable.

Issue 1: Validity of Reopening under Section 147

The reopening was predicated on information received from the Investigation Wing alleging that the assessee had engaged in sham transactions involving sale of property to 41 persons who were nominees, with the sale consideration routed back to the assessee, thus constituting unaccounted income. Additionally, an amount of Rs.28,00,000/- was alleged to have been received from a third party through banking channels. The Assessing Officer recorded reasons to believe that income had escaped assessment and accordingly reopened the assessment for the relevant assessment year.

The Tribunal examined the reasons recorded and found that the Assessing Officer's foundational premise-that the assessee had sold the property by way of sham transactions-was factually incorrect. The property was sold by third-party vendors to the 41 persons, and the assessee was only a confirming party to the Joint Development Agreement (JDA) with those persons. The Tribunal relied on an order passed under section 24(4)(a)(ii) of the Prohibition of Benami Property Transactions Act, 1988, wherein the competent authority had thoroughly examined the same transactions and concluded that the assessee had satisfactorily explained the source of payments and was not guilty of benami transactions. The proceedings under the Benami Act were dropped against the assessee.

The Tribunal held that the Assessing Officer's reasons for reopening were based on incorrect factual assumptions and a failure to apply mind to the material facts. Mere suspicion or surmises without proper application of mind and factual basis do not justify reopening under section 147. The reopening was therefore held to be invalid and bad in law.

Issue 2: Addition of Rs.2,94,13,031/- on Account of Bogus Sale of Property

The addition was made on the premise that the assessee had introduced unaccounted money by way of bogus sale of property to the 41 persons, who were nominees, and that the sale consideration was routed back to the assessee. However, the Tribunal noted that the competent authority under the Benami Act had found the assessee's explanation satisfactory and had dropped proceedings. The Tribunal emphasized that the Assessing Officer and the CIT(A) failed to appreciate the factual matrix and the findings of the competent authority.

The Tribunal observed that the addition was based on mere suspicion and surmises without any cogent evidence to establish that the transactions were sham or that the amounts received were unaccounted income. It was also noted that the assessee had entered into a valid JDA with the 41 persons and that litigation was pending in civil and high courts regarding the same.

Accordingly, the addition of Rs.2,94,13,031/- was held to be untenable, illegal, and liable to be deleted.

Issue 3: Addition of Rs.26,00,000/- on Account of Loan Credits

The Assessing Officer added Rs.26,00,000/- alleging accommodation entries through bogus share transactions. The reopening reasons mentioned receipt of Rs.28,00,000/- from M/s Raghuvir Sales Pvt. Ltd. through banking channels but did not specify any details or evidence to substantiate that the amount was unexplained or unaccounted income.

The assessee submitted that the amount represented genuine unsecured loans which were taken and repaid within the same financial year along with interest, with TDS deducted. Bank statements were furnished to substantiate the genuineness of the transactions.

The Tribunal found that mere receipt of an amount without any material or evidence to form a reason to believe that income had escaped assessment does not justify reopening under section 147. The Assessing Officer failed to demonstrate how the loan credits were unexplained cash credits under section 68. The addition was therefore held to be unjustified and liable to be deleted.

Issue 4: Dismissal of Appeal by National Faceless Appeal Centre Without Adjudication on Merits

The assessee challenged the ex-parte dismissal of the appeal by the National Faceless Appeal Centre without dealing with the grounds of appeal or the merits of the case. The Tribunal observed that both the Assessing Officer and the CIT(A) had confirmed additions without properly appreciating the facts or evidence on record.

The Tribunal implicitly held that dismissal of appeal without adjudication on merits, especially when the reopening itself was invalid and additions were not sustainable, was erroneous. The appeal was allowed accordingly.

Significant Holdings:

"The Assessing Officer's reasons for reopening were based on incorrect factual assumptions and a failure to apply mind to the material facts. Mere suspicion or surmises without proper application of mind and factual basis do not justify reopening under section 147."

"The addition of Rs.2,94,13,031/- was based on mere suspicion and surmises without any cogent evidence to establish that the transactions were sham or that the amounts received were unaccounted income."

"Mere receipt of an amount, without any information or evidence to form the belief that the said amount is unaccounted/escaped income of the assessee, would not constitute reasons to believe of escapement of income for the purpose of reopening of the assessment under section 147."

"The impugned additions were totally untenable, illegal, invalid and liable to be deleted."

The Tribunal concluded that the reopening of assessment was invalid, the additions were unsustainable both legally and factually, and the ex-parte dismissal of the appeal by the CIT(A) was erroneous. Consequently, the appeal was allowed and the additions were deleted. The decision underscores the principle that reopening of assessment requires a valid reason to believe supported by material facts, and additions must be based on cogent evidence rather than suspicion or surmises.