2025 (5) TMI 1403 - AT - Income Tax

Addition of variation in respect of unexplained income from undisclosed source - onus to prove - assessee submitted the details of sale invoices copy of the account and the VAT return to justify that sales were made. Thus the primary onus was discharged by the assessee - applicability of principles against double taxation where sales were recorded in audited books and payments received through banking channels. HELD THAT - AO has not questioned the sales declaration. Purchases were not doubted by the AO. The decisions of Vishal Exports Overseas Ltd. 2012 (7) TMI 1110 - GUJARAT HIGH COURT was relied by the assessee that of Hon ble Gujarat High Court as held that when the income is already offered for taxation the same cannot be taxed again as an unexplained cash credit as it would amount to double taxation. It is pertinent to note that in the present assessee s case the AO did not reject the books of account or questioned the quantitative details of stocks. The assessee during the assessment proceedings has given the details of credit and debit entries in the bank account of M/s. Akshar Corporation and at the same time has provided the purchase details along with the sale details. A.R. pointed out the valuation of closing stock as well as month-wise purchase register with summary sales register and retail invoice sales register during assessment proceedings. The various details of purchase ledger also supported the case of the assessee which was totally ignored by the AO as well by the CIT(A). The payments received against the sales were duly reflected in the banking channel as well as in the books of account. Assessee is dealing in trading of gold silver bullion ornaments in the name of M/s. Krupa Jewellers and is regularly tax audit report along with the details of profit and loss account and balance sheet for various years including that of the present assessment year. AO merely on the basis of information of Shripal Pravinchandra Shah has made the addition without taking into account the purchase/stock of the assessee as well as the details filed in support of the sales of the assessee. Therefore the additions made by the AO and confirmed by the CIT(A) u/s. 68 as relates to unexplained cash credit is not justified.

Summary

The core legal questions considered by the Tribunal in this appeal pertain primarily to the validity and legality of reopening the assessment under section 147 of the Income Tax Act, 1961, the correctness of additions made on account of unexplained income from alleged bogus sales, and the applicability of principles against double taxation where sales were recorded in audited books and payments received through banking channels. Specifically, the issues include:

1. Whether reopening the assessment under section 147 read with section 148 was legally valid and justified, particularly considering the absence of concealment of income and the presence of audited books of account.

2. Whether the Assessing Officer had sufficient tangible material or reason to believe that income had escaped assessment, thus warranting reassessment.

3. Whether reliance on information from the Investigation Unit without independent application of mind by the Assessing Officer rendered the reassessment invalid.

4. Whether additions made on the basis of alleged bogus sales recorded in the books of account and payments through banking channels were justified.

5. Whether the principle against double taxation applies when sales are already offered as income and included in the profit disclosed in the return of income.

6. Whether the Assessing Officer complied with procedural requirements, including providing opportunity for cross-examination and adherence to principles of natural justice.

7. Whether the books of account were reliable and whether the Assessing Officer was justified in rejecting explanations without adequate reasons.

8. Whether the additions made under section 68 for unexplained cash credit were justified in light of the evidence produced by the assessee.

Issue-wise Detailed Analysis:

Validity of Reopening under Section 147/148: The legal framework mandates that reopening of assessment under section 147 requires the Assessing Officer to have a reason to believe, supported by tangible material, that income chargeable to tax has escaped assessment. Explanation 2 to section 147 clarifies instances of escapement of income, including under-assessment. The Court emphasized that mere information or suspicion without application of mind or fresh tangible material is insufficient. The reopening must not be based on the same information previously available and considered in the original assessment.

The Tribunal noted that the Assessing Officer initiated reassessment relying on information from the Investigation Unit regarding alleged bogus transactions by M/s. Akshar Corporation, a party to whom the assessee had recorded sales. However, the same information was available during the original assessment, and no fresh material was brought on record. The Assessing Officer failed to demonstrate independent application of mind or new tangible material justifying reopening. The approval under section 151 for issuance of notice under section 148 was found to be mechanical and without proper scrutiny.

The Tribunal held that reopening on the basis of borrowed information without independent evaluation is invalid, rendering the reassessment void ab initio.

Assessment of Additions on Alleged Bogus Sales: The Assessing Officer treated sales amounting to Rs. 41,99,500/- to M/s. Akshar Corporation as bogus, adding the same as unexplained income under section 68. The basis was that M/s. Akshar Corporation was engaged in accommodation entries and bogus billing, as per investigation reports. However, the assessee produced detailed sales invoices, ledger accounts, bank statements, VAT returns, and audit reports showing that the sales were recorded in books of account and payments received through banking channels.

The Tribunal observed that the Assessing Officer did not reject the books of account under section 145 and did not question the quantitative details of stock or purchases. The assessee had discharged the primary onus by furnishing corroborative evidence of genuine sales and payments. The Tribunal relied on judicial precedents, including the decision of the Gujarat High Court, which held that income already offered for taxation cannot be taxed again as unexplained cash credit, as it would amount to double taxation.

The Tribunal found the Assessing Officer's addition to be arbitrary and not supported by incriminating material. The failure to consider the detailed evidence and to give the benefit of purchases against sales was a significant omission. The addition was therefore held to be unjustified.

Principle Against Double Taxation: The Tribunal emphasized the principle that once income is offered for taxation and reflected in audited books and returns, it cannot be subjected to addition again on the same amount as unexplained income. The sales figure was included in the profit disclosed by the assessee, and no adverse material was found to doubt the genuineness of the sales. Hence, the addition on the same amount was effectively double taxation, which is impermissible.

Procedural Compliance and Natural Justice: The assessee contended that the Assessing Officer violated principles of natural justice by not providing adequate opportunity for cross-examination and by rejecting explanations arbitrarily. The Tribunal noted that the Assessing Officer did not provide sufficient and specific opportunity to the assessee to rebut the allegations of bogus sales. The rejection of explanations without proper consideration was held to be contrary to natural justice.

Reliability of Books of Account and Evidence: The books of account were audited by Chartered Accountants, and the assessee maintained stock accounts and detailed purchase and sales registers. The Tribunal found no reason to doubt the reliability of the books. The Assessing Officer's failure to consider these facts and documents was a significant flaw in the assessment process.

Treatment of Competing Arguments: The Assessing Officer relied heavily on information from the Investigation Unit and the presumption of bogus transactions associated with M/s. Akshar Corporation. The assessee countered with documentary evidence and legal precedents emphasizing the genuineness of sales and the principle against double taxation. The Tribunal sided with the assessee on the merits, holding that the Assessing Officer's reliance on borrowed information without independent verification and failure to consider the detailed evidence was unjustified.

Conclusions: The Tribunal allowed the appeal on grounds relating to the merits of the additions (grounds 11 to 18), holding that the additions made under section 68 for unexplained cash credit were not justified. The appeal was dismissed on grounds not pressed by the assessee (grounds 1 to 10 and 19). Consequential grounds (20 to 22) were not adjudicated at this stage.

Significant Holdings:

"When the income is already offered for taxation, the same cannot be taxed again as an unexplained cash credit as it would amount to double taxation."

"Reopening of assessment on the basis of borrowed information without independent application of mind or fresh tangible material is invalid and the reassessment is void ab initio."

"Where books of account are audited, stock accounts maintained, and payments received through banking channels, mere suspicion or information about a related party's alleged bogus transactions cannot justify additions without incriminating material."

"Failure to provide adequate opportunity for cross-examination or to consider explanations furnished by the assessee violates principles of natural justice."

"Additions under section 68 require the Assessing Officer to discharge the onus of proving the credit to be unexplained and not genuine; mere suspicion or association with a third party's dubious transactions is insufficient."

Final determinations include the invalidity of reassessment proceedings based on the same information already available, the unjustified nature of additions on alleged bogus sales recorded in audited books, and the application of the principle against double taxation. The appeal was partly allowed accordingly.