2020 (5) TMI 81 - AT - Income Tax

ITAT upholds reopening & addition of Rs. 30 lakhs under Sections 147 & 68 stressing genuine transactions

The Income Tax Appellate Tribunal (ITAT) upheld the validity of the reopening under Section 147 and the addition of Rs. 30 lakhs under Section 68. The ... Reason to believe - reopening of assessment - accommodation entries - addition under Section 68 regarding genuineness and creditworthiness of loans/advances - application of mind in formation of belief - onus on the assessee to prove identity, creditworthiness and genuineness - investigation wing information as tangible material for reassessmentReason to believe - reopening of assessment - application of mind in formation of belief - investigation wing information as tangible material for reassessment - Validity of reopening of assessment under section 147/148 - HELD THAT: - The Tribunal upheld the validity of reopening. It found that specific and authenticated information arising from the investigation into an entry provider naming the assessee as a beneficiary (with particulars of cheques, dates and entities) constituted tangible material capable of forming a reason to believe that income had escaped assessment. The CIT(A)'s conclusion that the A.O. applied his mind was endorsed: information collected and analysed by the investigation wing, followed by administrative recording and higher level approval, sufficed to show application of mind. The Tribunal rejected the assessee's objections about non supply/confrontation of documents and delayed communication of name change as not vitiating reopening, noting the reasons had been supplied and the assessee had participated in the reassessment process. In absence of any rebuttal from the assessee, the reassessment proceedings and notice were held legally valid. [Paras 6]Reopening under section 147/148 upheld as valid on the basis of investigation wing material and adequate application of mind.Accommodation entries - addition under Section 68 regarding genuineness and creditworthiness of loans/advances - onus on the assessee to prove identity, creditworthiness and genuineness - Sustenance of addition under Section 68 treating claimed loans as unexplained/accommodation entries - HELD THAT: - On merits the Tribunal confirmed the addition. The material showed that the alleged lender companies were controlled by the entry provider, cash of equivalent amounts was deposited into those companies' bank accounts just before issuance of the cheques, summons to the creditor companies were unserved or not complied with, and the assessee failed to produce the creditors or otherwise discharge the statutory onus to prove identity, creditworthiness and genuineness of the loans. These facts, together with the investigation wing admission that the operator supplied accommodation entries and the absence of any adequate rebuttal by the assessee, led to the inevitable conclusion that the transactions were not genuine. Consequently, the addition under Section 68 was sustained. [Paras 7]Addition under Section 68 confirmed; loans treated as accommodation entries and unexplained credits in absence of satisfactory proof by the assessee.Final Conclusion: The appeal is dismissed: the Tribunal upholds the reopening of assessment for AY 2010-11 as legally valid on the basis of investigation wing material and adequate application of mind, and confirms the addition under Section 68 treating the claimed loans as accommodation entries where the assessee failed to discharge the onus of proving identity, creditworthiness and genuineness. Issues Involved:1. Validity of Reopening under Section 147.2. Addition of Rs. 30 lakhs under Section 68.Issue-wise Detailed Analysis:1. Validity of Reopening under Section 147:The assessee challenged the reopening of the assessment under Section 147, arguing that the reasons to believe were based on surmises and conjectures. The Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, stating that the reasons were based on findings of the Investigation Wing, which were duly recorded and communicated to the appellant. The CIT(A) held that the reasons to believe were formed after careful consideration and sound analysis of incriminating material in possession of the Assessing Officer (AO).The assessee also contended that the AO did not apply his mind independently and merely acted on the Investigation Wing's report. The CIT(A) refuted this, stating that the information from the Investigation Wing was specific and authentic, and the AO was duty-bound to initiate reassessment proceedings. The process involved adequate application of mind by both the AO and higher authorities.The appellant argued that the AO lacked jurisdiction due to a change in the company's name. The CIT(A) clarified that jurisdiction is determined by the assignment of PAN, and since the PAN was not migrated, the AO retained jurisdiction. The CIT(A) also noted that the appellant failed to communicate the name change for seven years, and the reassessment proceedings were initiated correctly.The appellant claimed that the AO did not dispose of objections raised against the reasons for reopening. The CIT(A) observed that the objections were primarily requests for documents and adjournments, not substantive challenges to the reopening. The CIT(A) concluded that the reassessment proceedings were legally valid and upheld the reopening under Section 147.2. Addition of Rs. 30 lakhs under Section 68:The assessee contested the addition of Rs. 30 lakhs under Section 68, arguing that it had provided necessary documents to prove the identity, creditworthiness, and genuineness of the transactions. The AO, however, found that the details provided were insufficient and issued summons to the creditors, which went unserved or were not complied with.The CIT(A) noted several key points:- The transactions were discovered during a search on a third party, who admitted to providing accommodation entries.- The creditor companies showed patterns of cash deposits followed by cheque issuance, indicating sham transactions.- The creditor companies had no substantial business activity and were used for providing accommodation entries.- The assessee failed to produce the creditors for verification and did not provide collateral or pay interest on the loans.The CIT(A) concluded that the transactions were not genuine and upheld the addition under Section 68. The CIT(A) relied on the decision of the Hon'ble Jurisdictional High Court in CIT vs. MAF Academy, which supported the view that such transactions lose credibility when the entities involved are controlled by entry providers.The Income Tax Appellate Tribunal (ITAT) agreed with the CIT(A)'s findings, emphasizing that the information from the Investigation Wing constituted tangible material for forming a reason to believe that income had escaped assessment. The ITAT noted that the assessee failed to rebut the doubts raised and could not establish the genuineness and creditworthiness of the transactions. The ITAT upheld the addition of Rs. 30 lakhs under Section 68.Conclusion:The ITAT dismissed the assessee's appeal, upholding both the validity of the reopening under Section 147 and the addition of Rs. 30 lakhs under Section 68. The judgment emphasized the importance of genuine transactions and the onus on the assessee to prove the creditworthiness and genuineness of entries in their books.