2025 (7) TMI 23 - AT - Income Tax

Reopening of assessment u/s 147 - addition made u/s 69A treating the same as unexplained cash credit - AO also initiated penalty proceedings u/s 271(1)(c) - HELD THAT - We note that the conclusion of the AO regarding the bogus capital gains which is not supported by any cogent evidence and the addition appears to be made without any basis and even the CIT(A) was erred in confirming the order of the AO without examining the merits of the case and documents submitted by the assessee before him. We examined the bank statements of the assessee for the assessment year under consideration as furnished before us for the period from 01.04.2011 to 31.03.2012 which reflected that there was no such transaction done as alleged by the AO while passing the assessment order. Also gone through the submission of the assessee which clearly stated that no capital gain loss arose during the assessment year 2012-13. However the AO did not look into the facts and even the ld. CIT(A) also did not consider while passing the impugned order. We therefore set aside the order of the CIT(A) and direct the AO to delete the addition made by him. Appeal of the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether the reopening of the assessment under section 147 of the Income Tax Act was justified and validly initiated by the Assessing Officer (AO).
• Whether the addition of Rs. 11,51,668/- made under section 69A of the Act, treating it as unexplained cash credit on account of alleged bogus capital gains, was legally sustainable.
• Whether the Assessing Officer and the Commissioner of Income Tax (Appeals) [CIT(A)] properly examined and appreciated the evidences and documents submitted by the assessee to rebut the addition.
• Whether the delay in filing the appeal before the Tribunal should be condoned.

2. ISSUE-WISE DETAILED ANALYSIS

Delay in filing the appeal

The Tribunal noted an 81-day delay in filing the appeal. The assessee submitted an application for condonation of delay with bona fide reasons. After perusal, the Tribunal was satisfied that sufficient cause existed to condone the delay and admitted the appeal for adjudication. This shows the Tribunal's discretionary power to condone delays when justified.

Validity of reopening under section 147

The reopening was initiated based on suspicion of bogus capital gains relating to manipulation in scrips of M/s BSR Finance & Construction Ltd. The Tribunal observed that the Assessing Officer failed to apply his mind properly while reopening the assessment and making the addition. The reopening notice under section 148 was issued and complied with, but the Tribunal found the basis for reopening was not supported by cogent evidence. The Tribunal implicitly held that reopening must be based on tangible material and proper application of mind, which was lacking here.

Legality and validity of addition under section 69A

Section 69A deals with unexplained cash credits. The AO treated the alleged bogus capital gains as unexplained cash credits and made an addition of Rs. 11,51,668/-. The assessee contended that no such transaction occurred and submitted multiple documents including the Income Tax Return (ITR), final accounts, and bank statements for the relevant year to demonstrate the absence of such transactions. The AO's remark that no return was filed was factually incorrect as the return was filed and acknowledged on 25.03.2013, which was also referred to in the assessment order.

The Tribunal examined the bank statements for the assessment year and found no evidence of the alleged transactions. The assessee's submission dated 23.08.2019 clearly stated that no capital gain or loss arose during the year. Both the AO and CIT(A) failed to properly consider these facts and evidences. The Tribunal concluded that the addition was made without application of mind and without any basis.

Appreciation of evidence and submissions by lower authorities

The Tribunal criticized both the AO and the CIT(A) for not properly examining the documents and evidences submitted by the assessee. The CIT(A) confirmed the addition without adequately appreciating the merits of the case or the bank statements and other documents produced. The Tribunal emphasized the necessity for the authorities to consider all relevant evidence before making adverse additions.

Application of law to facts

The Tribunal applied the legal principles that reopening under section 147 must be justified by tangible material and that additions under section 69A require credible evidence of unexplained cash credits. Since the assessee produced sufficient evidence negating the alleged bogus transactions and the AO failed to demonstrate any credible material, the addition was unsustainable. The Tribunal set aside the CIT(A) order and directed deletion of the addition.

Treatment of competing arguments

The assessee argued that the addition was baseless, the return was filed and acknowledged, and evidences negated the alleged transactions. The revenue supported the lower authorities' orders but did not controvert the factual submissions. The Tribunal gave due weight to the assessee's evidences and found the revenue's case lacking in substantiation.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The Assessing Officer failed to apply his mind both while reopening the assessment and while making the impugned addition."

"The conclusion of the Assessing Officer regarding the bogus capital gains which is not supported by any cogent evidence and the addition of Rs. 11,51,668/- appears to be made without any basis."

"The ld. CIT(A) was erred in confirming the order of the Assessing Officer without examining the merits of the case and documents submitted by the assessee before him."

"We, therefore, set aside the order of the ld. CIT(A) and direct the Assessing Officer to delete the addition made by him."

Core principles established include the necessity for the Assessing Officer to apply mind and base reopening and additions on credible evidence, the duty of appellate authorities to examine evidences thoroughly, and the requirement that unexplained cash credit additions must be supported by cogent material. The Tribunal's final determination was to allow the appeal, condone the delay, and delete the addition of Rs. 11,51,668/- made under section 69A.