2025 (5) TMI 331 - AT - Income Tax

Reopening of assessment - Addition u/s 69A - HELD THAT - We notice that both the authorities have not referred to the materials that actually refer to the assessee and the escapement of income in the hands of the assessee. Hence in the absence of material which formed the basis for making the impugned order in all the four years it would be difficult for the Tribunal to adjudicate the grounds both legal and merits raised by the assessee. Accordingly we are of the view that all the issues contested before us require fresh examination at the end of the AO. Accordingly we set aside the order passed by CIT(A) in all the four years under consideration and restore all the issues to the file of the AO for examining them afresh. AO is also directed to furnish the material which formed the basis for making the addition to the assessee. We also direct the assessee to fully co-operate with the AO for the expeditious completion of the assessment. After affording adequate opportunity of being heard to the assessee AO may take appropriate decision in accordance with law.

Summary

The core legal questions considered by the Tribunal in these appeals concerning assessment years 2013-14 to 2016-17 are as follows:

1. Whether the reopening of assessments under the old provisions of Section 148 of the Income Tax Act, which ceased to exist after 01.04.2021, was valid and lawful.

2. Whether the reopening of assessments was justified based on vague information received from the Investigation Wing without any independent inquiry by the Commissioner of Income Tax (Appeals).

3. Whether the Assessing Officer erred in completing the reassessment without issuing a notice under Section 143(2) despite the assessee filing returns in response to notices under Section 148.

4. Whether the Assessing Officer and the Commissioner of Income Tax (Appeals) failed to appreciate the replies and evidence submitted by the assessee during reassessment proceedings, particularly regarding the allegation of escaped income.

5. Whether the addition of Rs. 66.83 crores under Section 69A of the Income Tax Act as unexplained money was justified.

6. Whether the addition based on preference dividend warrants and shares allegedly allotted by Sharon Bio Medicine Ltd. was justified, given the assessee's denial of receipt of such warrants.

7. Whether the addition under Section 69A was permissible when the reasons recorded for reassessment related to circular movement of funds, but no additions were made on that basis.

Issue-wise Detailed Analysis

1 & 3. Validity of Reopening under Section 148 and Issuance of Notice under Section 143(2)

The assessee challenged the reopening of assessments under the old provisions of Section 148, contending that these provisions ceased to exist after 01.04.2021, rendering the reassessment orders void ab initio. Additionally, the assessee argued that no notice under Section 143(2) was issued, which is mandatory when the return is filed in response to a Section 148 notice.

The Tribunal noted that these grounds were not pressed by the assessee at the hearing, leading to their dismissal as not pressed. The Court did not delve into detailed analysis on these points, effectively upholding the status quo on procedural compliance.

2. Justification for Reopening Based on Information from Investigation Wing

The reopening was initiated on the basis of information received from the DDIT (Investigation Wing), alleging circular movement of funds involving the assessee without any actual trade. The Assessing Officer recorded reasons to believe that income of Rs. 66.83 crores had escaped assessment. The assessee contended that the reopening was based on vague and unsubstantiated information without any independent inquiry.

The Tribunal observed that the Assessing Officer had relied solely on the information from the Investigation Wing and did not produce any material directly implicating the assessee. The Commissioner of Income Tax (Appeals) had confirmed the reopening without conducting an independent inquiry. The Tribunal found that both authorities failed to refer to material specifically linking the alleged escaped income to the assessee.

The Court emphasized the need for the Assessing Officer to furnish the material forming the basis of the addition and directed a fresh examination of the issue, underscoring that reopening must be supported by tangible reasons and not mere vague information.

4. Appreciation of Replies and Evidence Submitted by the Assessee

The assessee submitted replies and draft assessment orders contesting the addition. However, the Commissioner of Income Tax (Appeals) dismissed these submissions, observing that the assessee was deliberately not providing relevant information and documents, and was not genuinely pursuing the appeal. The CIT(A) relied on a forensic report mentioned in an FIR filed by Union Bank of India before the CBI, implicating the assessee in fictitious trading transactions with Sharon Bio Medicine Ltd.

The Tribunal found the CIT(A)'s order cryptic and lacking detailed reasoning on the legal and factual grounds raised by the assessee. The Court noted the absence of documentary evidence or detailed examination of the assessee's submissions, and that the CIT(A) did not adequately address the legal contentions.

Consequently, the Tribunal set aside the CIT(A) order and remanded the matter for fresh consideration after affording the assessee an opportunity to be heard.

5 & 6. Addition of Rs. 66.83 Crores under Section 69A and Allegation Regarding Preference Dividend Warrants

The Assessing Officer made an addition of Rs. 66.83 crores as unexplained money under Section 69A, based on the allegation that the assessee was involved in circular movement of funds. The assessee denied receipt of preference dividend warrants or shares from Sharon Bio Medicine Ltd., challenging the addition on merits.

The CIT(A) upheld the addition, relying on the forensic report and the FIR, and criticized the assessee's non-cooperation and failure to produce evidence. However, the Tribunal noted that the Assessing Officer did not produce any material directly linking the circular funds to the assessee's income, nor did the CIT(A) adequately examine the merits of the assessee's denial regarding the dividend warrants.

The Tribunal emphasized that the addition under Section 69A must be based on concrete evidence of unexplained money or investment, and not merely on suspicion or association with other entities. The Tribunal directed the Assessing Officer to produce the material basis for the addition and re-examine the issue.

7. Legality of Addition under Section 69A in Absence of Addition on Reasons Recorded for Reassessment

The assessee argued that since the reason recorded for reassessment was circular movement of funds, and no addition was made on that basis, the Assessing Officer could not make addition on any other ground under Section 69A. This ground was raised as an additional ground during the appeal.

The Tribunal did not specifically address this ground in its order but by setting aside the orders and remanding the matter for fresh adjudication, implicitly required the Assessing Officer to align the additions strictly with the reasons recorded for reopening and to ensure procedural propriety.

Application of Law to Facts and Treatment of Competing Arguments

The Tribunal applied the principles governing reopening of assessments under Section 147 and related provisions, emphasizing that reopening must be based on tangible material and reasons to believe that income chargeable to tax has escaped assessment. The Court noted the absence of independent inquiry and material specifically implicating the assessee, which undermined the validity of the additions.

The Tribunal also referred to the principle that the law assists those who are vigilant and actively pursue their rights, criticizing the CIT(A)'s observation on the assessee's conduct but underscoring the need for proper adjudication of legal and factual contentions.

The competing arguments centered on the sufficiency and reliability of the information from the Investigation Wing, the linkage of circular movement of funds to the assessee's income, and the procedural compliance in reassessment proceedings. The Tribunal found the revenue authorities' reliance on vague information and FIR-related reports insufficient without concrete material, and the assessee's denial of receipt of dividend warrants unaddressed.

Conclusions

The Tribunal concluded that the orders of the Commissioner of Income Tax (Appeals) confirming the additions under Section 69A were not sustainable due to lack of material and inadequate reasoning. The Tribunal set aside the CIT(A) orders and remanded the matters to the Assessing Officer for fresh examination, directing the AO to furnish the material forming the basis for the addition and to afford the assessee a fair opportunity to respond.

The appeals were partly allowed by setting aside the impugned orders and restoring the issues for fresh adjudication.

Significant Holdings

"Both the authorities have not referred to the materials that actually refer to the assessee and the escapement of income in the hands of the assessee. Hence, in the absence of material which formed the basis for making the impugned order in all the four years, it would be difficult for the Tribunal to adjudicate the grounds, both legal and merits, raised by the assessee."

"The Assessing Officer is also directed to furnish the material which formed the basis for making the addition to the assessee. We also direct the assessee to fully co-operate with the Assessing Officer for the expeditious completion of the assessment. After affording adequate opportunity of being heard to the assessee, the AO may take appropriate decision in accordance with law."

"The maxim 'vigilantibus non-dormientibus jura subvenunt' i.e. the law assists those who are vigilant and not those who sleep over their right, is applicable in this case."

These holdings establish the core principles that reopening of assessments must be supported by concrete material, that procedural fairness and opportunity to be heard are essential, and that appellate authorities must provide reasoned decisions addressing all legal and factual contentions.