2025 (5) TMI 1639 - AT - Income Tax

Reopening of assessment - assessee booked bogus loss and later increased the amount on baseless evidence - AR challenges the very filing of appeal by submitting that in the present case tax effect is below the prescribed monetary limit to file an appeal by the revenue before the ITAT. HELD THAT - There is no dispute that in the present case tax effect is low but the submission of D.R is that the case of the assessee is covered in the exceptional clause. We have gone through the order of CIT(A). Admittedly in this case the original assessment was made u/s 143(3) on 28.03.2016 and the notice u/s 148 has been issued on 16.03.2021 i.e. it has been issued beyond the period of four years from the end of relevant assessment year. Assessee company furnished all the details in course of assessment proceedings and the assessment order was passed after due examination and verification on material facts furnished before the AO. In the instant case there are nothing has been disclosed in the reason recorded that the assessee company failed to disclose truly and fully material facts rather it was only on the basis of information received. There is nothing in the reasons recorded that primary documents were not truly and fully disclosed by the assessee company. Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the delay in filing the second appeal by the revenue before the Appellate Tribunal should be condoned despite being beyond the prescribed time limit.

- Whether the reopening of the assessment under section 148 of the Income Tax Act, 1961, beyond four years from the end of the relevant assessment year, was valid in the absence of failure on the part of the assessee to disclose material facts truly and fully.

- Whether the addition of Rs. 49,69,269/- on account of alleged bogus losses claimed by the assessee could be sustained by the Assessing Officer (AO) on the basis of information received from the Investigation Wing without cogent evidence or verification.

- Whether the appellate authority erred in deleting the addition made by the AO and whether the revenue's appeal challenging the order of the Commissioner of Income Tax (Appeals) (CIT(A)) was maintainable given the tax effect was below the prescribed monetary limit.

- Whether the principles of natural justice were violated in reopening the assessment without providing the assessee an opportunity to cross-examine persons whose statements formed the basis of reopening.

2. ISSUE-WISE DETAILED ANALYSIS

Condonation of Delay in Filing Appeal:

The appeal was filed with a delay of two days beyond the prescribed period. The revenue submitted a condonation petition citing heavy workload, including the preparation of reports such as DTVSV and ASR, and personal leave taken by the officer. The Tribunal noted that the delay was short and the reasons genuine and bonafide. The learned Departmental Representative (D.R) did not oppose the condonation. The Tribunal relied on judicial principles emphasizing that cases should be decided on merits rather than on technical grounds. Consequently, the delay was condoned.

Validity of Reopening under Section 148 Beyond Four Years:

The original assessment for AY 2013-14 was completed under section 143(3) on 28.03.2016. The reopening notice under section 148 was issued on 16.03.2021, beyond the four-year period from the end of the assessment year. The reasons recorded for reopening alleged bogus losses claimed by the assessee. However, the Tribunal observed that the assessee had disclosed all material facts fully and truly during the original assessment proceedings, including details of share transactions and losses. The reopening was based solely on information received from the Investigation Wing without any new material indicating concealment of material facts by the assessee.

The Tribunal noted the absence of any failure on the part of the assessee to disclose facts and that the reopening was apparently on a change of opinion by the AO, which is not permissible. The Tribunal also highlighted that the reopening was triggered by suspicion and surmises rather than cogent evidence.

Validity of Addition on Account of Bogus Losses:

The AO made an addition of Rs. 49,69,269/- alleging bogus losses related to share transactions in KCCL Plastics Ltd. This was in addition to a prior addition of Rs. 78,25,188/- on bogus losses in shares of other companies, which had been deleted by the ITAT in earlier proceedings. The assessee had submitted detailed lists of purchases and sales of shares, which were verified during the original assessment.

The Tribunal examined the facts as discussed by the CIT(A), who found that the AO's addition was made without any basis and was wholly on surmises and presumptions. The assessee's transactions were electronic, executed through recognized stock exchanges and SEBI-registered brokers, and supported by banking channels. The Tribunal also noted that the assessee was not given an opportunity to cross-examine the persons whose statements formed the basis of reopening, thereby violating principles of natural justice.

The Tribunal referred to judicial precedents emphasizing that reopening cannot be sustained on mere change of opinion or suspicion without fresh tangible material. The Tribunal also considered the decision of the Hon'ble Gujarat High Court in Yogendrakumar Gupta vs. ITO, which upheld reassessment based on fresh information linking transactions to dummy companies, but found the facts in the present case distinguishable as no such direct linkage or fresh material was demonstrated.

Maintainability of Revenue's Appeal:

The assessee contended that the tax effect was below the monetary threshold prescribed for filing an appeal by the revenue before the ITAT. However, the Tribunal observed that the revenue's challenge was based on an exceptional clause, presumably invoking the right to appeal despite the low tax effect. The Tribunal did not find this ground sufficient to overturn the CIT(A)'s order, especially given the lack of substantive evidence supporting the AO's additions.

Application of Law to Facts and Treatment of Competing Arguments:

The Tribunal carefully analyzed the submissions of both parties. The revenue relied on the investigation report and judicial pronouncements supporting reassessment on fresh information. The assessee emphasized full disclosure of material facts, detailed documentation of share transactions, and the lack of fresh tangible evidence. The Tribunal found the CIT(A)'s detailed discussion and reliance on judicial precedents persuasive, concluding that the AO's addition was unsustainable.

The Tribunal also underscored the importance of natural justice, noting the failure to provide the assessee with an opportunity to cross-examine witnesses, which vitiated the reopening proceedings.

3. SIGNIFICANT HOLDINGS

"The Ld. CIT(A) has not only discussed the case of the assessee rather gave its finding on the basis of judicial pronouncements and the material facts of the assessee."

"Assessing Officer has reopened this matter after a period of 4 years, although assessee has disclosed all the facts, including losses in case of M/s. KCCL Plastics Ltd, at the time of original assessment proceedings and there is no failure on the part of assessee to disclose all material facts truly and correctly."

"Assessing Officer has made additions of losses in all scrips, without any basis, which is completely wrong."

"Assessee Company has done all the transactions electronically and through banking channel, by way of debiting and crediting shares in demat account. All transactions are being done through recognised Stock Exchanges and through SEBI Registered Brokers."

"Assessee Company has not been provided the opportunity to cross-examine the persons, on whose statement and information assessee's case has been reopened, hence principles of natural justice being violated."

Core principles established include that reopening of assessment beyond four years is invalid if there is no failure to disclose material facts and is based merely on suspicion or change of opinion; additions on account of bogus losses require cogent evidence and cannot be sustained on surmises; and principles of natural justice mandate opportunity to cross-examine witnesses in reassessment proceedings.

Final determination: The appeal filed by the revenue was dismissed, upholding the order of the CIT(A) deleting the addition of Rs. 49,69,269/-. The delay in filing the appeal was condoned. The reopening of assessment and the addition made were held to be unsustainable.