2025 (5) TMI 1938 - AT - Income Tax

Validity of reopening of assessments u/s 148 - Reopening of assessments u/s 148 considering the prior annulment of assessments completed u/s 153C - validity of approval granted u/s 151 - proceedings u/s 264 - Unexplained deposits - HELD THAT - Not only the Ld. Commissioner of Income Tax Central-II New Delhi but the AO and Range Head who dealt these cases were well aware of the entire facts of these cases before reopening - CIT has applied his mind while giving the approval u/s 151 as he was fully aware of the entire facts of the cases after dealing the same during the course of proceedings u/s 264 which has become final. Had the Ld. Commissioner of Income Tax Central-II New Delhi not applied his mind after going through the entire material on records and hearing assessees he would have not annulled orders passed under section 153C of the Act. Since assessments of these cases completed earlier under section 153C of the Act annulled by the Ld. Commissioner of Income Tax Central- II New Delhi had attained finality; therefore any finding of the AO in such annulled orders have no relevance. Further consequential reassessment proceedings initiated in the above-mentioned cases were not due to any earlier proceedings barred by the limitation but against abinitio void proceedings under section 153C of the Act. These are not the cases of regularization of time barred proceedings. It is also worth mentioning that the issue on which these cases reopened had not ever been annulled by any Appellate Authority; hence the case laws relied upon by this Tribunal in Group cases as mentioned above are held distinguishable. The said revision of assessments of these cases completed earlier u/s 153C of the Act by an Administrative Authority is different than that of any appellate authority. Even in the case of Abhisar Buildwell 2023 (4) TMI 1056 - SUPREME COURT has allowed for initiation of remedial assessment proceedings as per law after holding assessments completed under section 153A and 153C of the Act in absence of adverse seized material as invalid. We are of the firm view that the approval un/s 151 of the Act cannot be treated as mechanical with non-application of mind.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in these consolidated appeals and cross objections are:

(i) Whether the Commissioner of Income Tax (Appeals) erred in law and on facts in deleting substantial additions made by the Assessing Officer (AO) on account of unexplained deposits and unexplained liabilities in the hands of the assessees, particularly when the assessees were alleged to be providing accommodation entries.

(ii) Whether the submissions and explanations furnished by the assessees were adequate, genuine, and reliable to discharge the initial onus under section 68 of the Income Tax Act, 1961 (the Act), and whether the CIT(A) was justified in relying on these submissions which were rejected by the AO during the assessment stage.

(iii) Whether the reopening of assessments under section 148 of the Act was valid, considering the prior annulment of assessments completed under section 153C of the Act on jurisdictional grounds, and whether the AO had valid material and jurisdiction to initiate reassessment proceedings.

(iv) Whether the approval granted under section 151 of the Act for reopening was a valid exercise of jurisdiction and application of mind, or a mechanical and invalid approval.

(v) Whether the additions made on account of estimated profits on sale of investments without any concrete evidence or enquiry were justified.

(vi) Whether the CIT(A) erred in deleting additions without proper application of mind and without verifying the genuineness of transactions, creditworthiness of parties, and the nature of accommodation entries.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i) & (ii): Deletion of additions on unexplained deposits and liabilities and adequacy of assessees' submissions

The legal framework governing unexplained credits in the books of account is primarily section 68 of the Act, which places the initial onus on the assessee to explain the nature and source of such credits and to establish the identity, genuineness, and creditworthiness of the parties from whom the money was received. If the assessee fails to discharge this initial onus, the AO is entitled to make additions treating such credits as income.

The AO had made substantial additions on account of unexplained deposits and liabilities on the ground that the assessees had failed to provide adequate confirmations or evidence regarding the source of funds and the genuineness of transactions. The AO relied on the statement of Shri Aseem Kumar Gupta, a director of the assessees, recorded under section 133A during a survey operation, wherein he admitted that the assessees were engaged in providing accommodation entries to various entities.

The CIT(A), however, deleted these additions primarily on the basis of submissions and bank statement summaries filed by the assessees, without demanding confirmations from the parties or verifying the genuineness of the transactions or the creditworthiness of the parties involved. The CIT(A) did not consider the admission of the director regarding accommodation entries nor did it examine the commission or benefits accrued to the assessees from such transactions.

The Tribunal held that the CIT(A) erred in deleting the additions without applying independent mind and without requiring the assessees to discharge the initial onus under section 68. The Tribunal emphasized that mere filing of details without confirmation or verification cannot absolve the assessees from the tax liability, especially when the director's statement clearly indicated that the assessees were engaged in accommodation entries. The Tribunal noted that the CIT(A) blindly accepted the assessees' submissions without scrutinizing the nature of accommodation entries or identifying the real beneficiaries.

Precedents relied upon by the Revenue and upheld by the Tribunal include decisions of the Hon'ble Supreme Court and High Courts, which establish that each debit and credit entry must be satisfactorily explained and that unexplained credits can be taxed as income. The Tribunal also referred to decisions wherein statements recorded during surveys under section 133A were held admissible for assessment purposes.

The Tribunal thus reversed the CIT(A)'s deletion of additions on unexplained deposits and liabilities and restored the AO's orders for the relevant assessment years.

Issue (iii) & (iv): Validity of reopening of assessments and approval under section 151

The assessees challenged the validity of reopening of assessments under section 148 of the Act, contending that the earlier assessments completed under section 153C were annulled for lack of jurisdiction and that the reopening was therefore invalid and barred by limitation. They also questioned the validity of approval granted under section 151 of the Act, alleging non-application of mind by the approving authority.

The Tribunal examined the factual matrix and noted that the Commissioner of Income Tax, Central-II, New Delhi, who granted approval under section 151, was fully aware of the facts of the case, having dealt with the assessees in proceedings under section 264 of the Act that annulled the earlier assessments under section 153C. The Tribunal held that the approval under section 151 was not mechanical but a considered decision after applying mind to the material on record.

The Tribunal further held that since the earlier assessments under section 153C were annulled as void ab initio, the AO was justified in reopening the assessments under section 148 on the basis of fresh tangible material, including the director's statement admitting provision of accommodation entries. The Tribunal distinguished the present facts from cases where reopening is barred by limitation or where no fresh material is available.

In support, the Tribunal relied on the Hon'ble Supreme Court's decisions which have held that the sufficiency or correctness of material is not to be examined at the stage of reopening; it is sufficient if there is prima facie material to form a belief of escapement of income. The Tribunal also referred to decisions allowing remedial assessments after annulment of earlier assessments completed under sections 153A and 153C.

Consequently, the Tribunal dismissed the assessees' cross objections challenging the reopening and upheld the validity of reassessment proceedings.

Issue (v): Addition on estimated profits on sale of investments

The AO made additions on account of estimated profits on sale of investments where the assessees had shown investments but no profit or loss on sale was disclosed. The AO made these additions on a presumptive basis without any concrete evidence or enquiry.

The CIT(A) deleted these additions, and the Tribunal concurred with the CIT(A), holding that additions based purely on surmises and conjectures without any supporting evidence or enquiry are not justified. The Tribunal directed the AO to delete such additions for the relevant assessment years.

Issue (vi): Adequacy of CIT(A)'s reasoning and reliance on assessees' submissions

The Revenue contended that the CIT(A) failed to provide reasoned orders and merely accepted the assessees' submissions without verification or application of mind, which did not meet the requirements of a speaking order.

The Tribunal agreed with the Revenue on this point, observing that the CIT(A) had deleted substantial additions without demanding confirmations from parties, without verifying the genuineness of accommodation entries, and without considering the director's admission. The Tribunal emphasized that such acceptance without scrutiny undermines the tax administration and allows escape of tax.

The Tribunal accordingly reversed the CIT(A)'s deletion of additions on unexplained deposits and liabilities, restoring the AO's findings.

3. SIGNIFICANT HOLDINGS

The Tribunal crystallized the following principles and determinations:

"It is the statement of the director of assessee company which was never retracted and in fact by arguing before lower authorities, so in turn, it was his tacit approval of his statement. Statement u/s 133A of the Act can be used for the purpose of making an assessment in the hands of the assessee."

"Unless the assessee shows the necessary ingredients u/s 68 he cannot get away with the addition. Mere filing of details without confirmation of the parties, assessee cannot get away with the addition."

"The CIT(A) has deleted the addition without applying the law to the facts of the case and without verifying the genuineness of transactions or creditworthiness of parties. Such blind acceptance is not justified."

"The approval under section 151 of the Act cannot be treated as mechanical with non-application of mind. The Commissioner was fully aware of the facts and applied his mind while granting approval."

"Reopening of assessments after annulment of earlier assessments held void ab initio is justified if there is fresh tangible material on record."

"Additions based on surmises and conjectures without enquiry or evidence are not sustainable."

"Where the assessee is an accommodation entry provider, the AO may invoke provisions of section 226(3) of the Act to recover taxes from the real beneficiaries if the assessee's assets are insufficient."

Final determinations on the issues are:

(i) The Tribunal allowed the Revenue's appeals and restored the additions made by the AO on unexplained deposits and liabilities for the relevant assessment years, reversing the CIT(A)'s deletions.

(ii) The Tribunal upheld the validity of reopening of assessments under section 148, dismissing the assessees' cross objections.

(iii) The Tribunal directed deletion of additions made on estimated profits on sale of investments due to lack of evidence.

(iv) The Tribunal remanded one appeal for fresh adjudication where the CIT(A) deleted additions without seeking remand report as per procedural requirements.