2017 (5) TMI 470 - AT - Income Tax

Tribunal allows appeals, directs re-examination for income escapement & unexplained cash credits

The Tribunal upheld the reopening of the assessment for AY 2007-08 under Section 148 based on new information indicating income escapement. Additions ... Reopening of assessment on possession of new information under section 147/148 - treatment of unexplained cash credits and onus under section 68 - requirement of proving creditworthiness of creditor and genuineness of loan - admissibility and weight of circumstantial evidence where direct evidence is unavailable - right to supply materials and opportunity of cross-examination before relying on witness statementReopening of assessment on possession of new information under section 147/148 - right to reopen within four years where new information is obtained - Validity of reopening assessment for AY 2007-08 by issuance of notice under section 148 - HELD THAT: - The Tribunal found that after completion of the original assessment for AY 2007-08 the Department obtained new information from searches and from statements recorded during investigation (including the creditor's statement denying loans and alleging provision of accommodation entries). That information constituted material which had nexus with the formation of belief that income had escaped assessment. The reopening was effected within four years of the end of the relevant assessment year; therefore the proviso to section 147 was not attracted. Applying these facts, the Tribunal held that the AO had sufficient new information to validly reopen the assessment and that the reopening was not a mere change of opinion. [Paras 6]Reopening of assessment for AY 2007-08 under section 148 upheld.Treatment of unexplained cash credits and onus under section 68 - requirement of proving creditworthiness of creditor and genuineness of loan - admissibility and weight of circumstantial evidence where direct evidence is unavailable - right to supply materials and opportunity of cross-examination before relying on witness statement - Validity of additions made by the AO treating amounts as unexplained cash credits under section 68 (loans shown from M/s Deepak Enterprises) and adequacy of opportunity afforded to the assessee - HELD THAT: - The AO had disbelieved the assessee's claim of loans from the creditor predominantly on the basis of the creditor's statement recorded under section 131(1) and on limited bank information, and accordingly made additions under section 68 across the assessment years. The Tribunal analysed the evidentiary position: while the assessee had disclosed identity of the creditor and ledger entries showing receipt of loans by account-payee cheques, the creditor's statements denied advancing loans and alleged provision of accommodation entries. The Tribunal emphasised that where direct evidence is unavailable because the creditor has turned hostile, circumstantial evidence may be relied upon; however, the adjudicating authority must afford the assessee a fair opportunity and pursue corroborative material by appropriate enquiries (for example, obtaining complete bank statements of the creditor and other records) before drawing adverse inference. The Tribunal found that the AO had relied on statements and partial material obtained behind the back of the assessee and had not supplied all incriminating material or conducted adequate independent corroboration; the CIT(A) remedied procedural defects by allowing cross-examination but on appellate review the Tribunal concluded that the AO should be directed to re-adjudicate after furnishing the materials and making further enquiries so that the assessee can explain and produce supporting evidence. Consequently, the Tribunal did not decide the merits of the additions but remitted the matters for fresh adjudication with specific directions. [Paras 21]Additions under section 68 set aside and appeals remitted to the AO for fresh adjudication; AO to obtain creditor's bank statements, supply all material to the assessee, allow explanation and then decide.Final Conclusion: Reopening of assessment for AY 2007-08 was validly made on the basis of new information; however, additions treating loans from M/s Deepak Enterprises as unexplained cash credits under section 68 were not finally adjudicated and are remitted to the AO for re-examination, with directions to obtain and supply complete records (including creditor bank statements), permit cross-examination and provide the assessee an opportunity to produce explanatory and corroborative evidence before a fresh decision is taken. Issues Involved:1. Reopening of assessment under Section 148 of the Income Tax Act, 1961 for the assessment year 2007-08.2. Additions made under Section 68 of the Income Tax Act, 1961 in various assessment years: 2007-08, 2008-09, 2009-10, 2005-06, and 2010-11.Issue-wise Detailed Analysis:1. Reopening of Assessment under Section 148 for AY 2007-08:The assessee challenged the reopening of the assessment for AY 2007-08 under Section 148. The brief facts are that the assessee, running a proprietorship concern, filed her return on 29.10.2007 declaring a total income of Rs. 7,11,187/-. The assessment was initially completed under Section 143(3) determining the income at Rs. 7,61,190/-. The assessment was reopened based on new information obtained during the assessment proceedings for AY 2008-09, where it was found that the loan transactions with M/s Deepak Enterprises (DE) were not genuine. The AO recorded reasons for reopening, citing that the creditor, Dipin Patel, in his statement under Section 131(1), denied giving any loan to the assessee and admitted to providing accommodation entries. The Tribunal found that the AO had new information justifying the belief that income had escaped assessment and upheld the reopening of the assessment within four years from the end of the relevant assessment year.2. Additions under Section 68 in Various Assessment Years:AY 2008-09:The assessee declared an income of Rs. 40,68,811/- and showed a loan of Rs. 73,87,331/- from Dipin Patel, proprietor of DE. The AO, after verifying with DE, found that no such loan was shown in DE’s books and added the amount under Section 68 as unexplained cash credit. The AO relied on the statement of Dipin Patel, who admitted to providing accommodation entries.AY 2009-10 and 2010-11:Similar additions were made based on the statement of Dipin Patel and the non-appearance of the loan in DE’s books. The AO reproduced ledger accounts and bank statements, concluding that the loans were not genuine.AY 2005-06 and 2007-08:Additions were made based on the pattern observed in AY 2008-09, where the AO concluded that the loans were accommodation entries.Assessee’s Argument:The assessee contended that the loans were received through account payee cheques and duly recorded in the books. The assessee argued that the AO did not provide an opportunity for cross-examination of Dipin Patel and did not supply copies of the statement or bank records. The assessee maintained that the burden of proving the genuineness of the transaction was discharged by providing the identity of the creditor and the transaction details.Tribunal’s Observations:The Tribunal noted that the AO did not provide sufficient opportunity to the assessee to cross-examine Dipin Patel and did not supply all relevant documents. The Tribunal emphasized the importance of circumstantial evidence when direct evidence is not available. The Tribunal found that the AO’s investigation was inadequate and that the assessee should be allowed to prove her case with the help of circumstantial evidence.Conclusion:The Tribunal set aside the impugned orders and remitted the cases back to the AO for re-adjudication. The AO was directed to examine the ledger accounts of the assessee, obtain bank statements of the creditor, and supply all incriminating materials to the assessee for explanation. The assessee was given the liberty to submit any additional evidence or explanation in support of her defense.Final Order:All appeals of the assessee were allowed for statistical purposes, and the cases were remitted back to the AO for fresh adjudication with specific directions to ensure a fair opportunity for the assessee to present her case.