2021 (4) TMI 593 - AT - Income Tax

Tribunal affirms jurisdiction under Income Tax Act & deletion of addition; Revenue's appeal & assessee's cross appeal dismissed.

The Tribunal upheld the jurisdiction assumed under Section 147 of the Income Tax Act, dismissing the cross appeal challenging this jurisdiction. ... Reopening of assessment u/s 147 - Addition u/s 68 on Unexplained cash Credit - Whether jurisdiction to the AO would lie under s.153C of the Act, if any and invocation of jurisdiction under s.147 of the Act in the case of assessee, arising from search in Venus Group, is contrary to scheme of the Act and thus devoid of legitimacy? - HELD THAT:- The debate on scope of conferment of powers under S. 153C prior to its amendment by Finance Act, 2015 was subjected to judicial scrutiny. The Courts have consistently held that the expression ‘belongs to’ with reference to person other than searched person implies something more than idea of casual association and Section 153C of the Act could not be invoked in the pre amendment era unless the AO of the searched person is satisfied for cogent reason that the seized documents belong to the person other than searched person. In the instant case, no such satisfaction per se is found to have been formed by the AO of the searched person(Venus Group) and in the absence of such express satisfaction, the AO of the assessee was not vested with jurisdiction to exercise powers conferred under s.153C - AO of the Assessee was thus ousted from exercise of jurisdiction under S. 153C. In the circumstances, the AO of the Assessee has rightly resorted to S. 147 of the Act on fulfillment of stipulated conditions. The loose papers seized together with cash diary recorded by/ for the searched person are admittedly not belonging to the assessee per se although certain entries showing therein are claimed to be pertaining to / relatable to the assessee. Noticeably, the AO of assessee has explicitly stated in para 4.2 and para 9.4 of the impugned re-assessment order that seized material ‘belongs to’ searched person i.e. Venus Group. In the backdrop of these facts, the plea canvassed on behalf of the assessee for availability of jurisdiction under s.153C of the Act in supersession to Section 147 of the Act does not merit acceptance. Borrowed satisfaction of the AO merely on the basis of certain information received from other AO - Satisfaction of the AO on the reasons cited suffers from the vice of non-application of mind and a mere borrowed satisfaction - On perusal of the reasons recorded for reopening of the assessment, it becomes crystal clear that certain seized papers were found from the possession of the third party i.e. searched person which alleged certain surreptitious unaccounted cash transactions between the assessee and the searched person. The AO has clearly indicated that the seized documents were duly analyzed by him. Furthermore, from para 10 of the reasons recorded, it is noticed that on receipt of the information from the AO of the searched person, a pre-verification exercise of records of the assessee was also carried out to ascertain the facts indicated in the seized material. It is only after verification of the seized documents qua the records of the assessee, the action was initiated under s.147/ s. 148 of the Act. Thus, these facts clearly suggest that the AO exerted himself on the information received from the AO of searched person and formed his own and independent prima facie belief on purported escapement of income. It is noticed that the AO has set out the facts in great length in the reasons recorded which overtly indicate the requisite application of mind reasonably expected from AO at the stage of commencement on proceedings under s.147 of the Act. In the circumstances, when seen holistically, the belief of the AO is clearly an independent belief and cannot be labeled as a borrowed satisfaction or a satisfaction without any application of mind. Change of opinion - action taken under s.147 of the Act is actuated by re-visiting an opinion already formed on the subject matter of dispute at the time of original assessment and thus vitiated on the grounds of change of opinion / review of assessment - As seen in the instant case, a search and survey was conducted at the premises of Venus Group and certain documents were seized. These documents alleged that certain clandestine transactions have been entered between the assessee and Venus Group which remained unrecorded in the regular books maintained by both the parties. Such seized material gathered in the course of search proceedings subsequent to original assessment proceedings added an entirely new dimension to the set of transactions towards credits/advances recorded in regular books by the Assessee and subjected to scrutiny earlier. The facts revealed in the seized documents/ statements claiming to reveal untruthfulness in the entries recorded by AO in regular books did not present to the mind of the AO in the course of original proceedings. The AO simply could not be expected to put blinkers on his eyes and ignore information just for the reason that the transactions through banking channel as recorded in books were earlier subjected to scrutiny. Certain element of subjectivity involved in formation of belief thus cannot overstretched at the threshold stage. Hence, the plea of the assessee that the finality of assessment earlier made under s.143(3) of the Act cannot be disturbed is totally misplaced in the wake of new facts coming to the light of the AO at the time of invoking jurisdiction. Hence, the objection of the assessee canvassed on point of jurisdiction fails on all counts. Thus, we see no error in the action of the CIT(A) in upholding the jurisdiction. Additions towards alleged unexplained cash credit u/s 68 - CIT-A deleted the addition - No doubt, the documents found possessed from the custody of a searched person may possibly operate as an estoppel against that searched person, if the circumstances so warrant, but it is unconceivable to bind a third party for such entries/diary without demonstrating cogent nexus. The whole action is in the realm of conjectures and surmises mainly on the basis of some scanty and sketchy statement yielded from the accountant of the searched person. The revenue has alleged underhand cash transactions. Hence, the primary onus in the instant case, squarely lied upon the Revenue and that to justify it with direct or circumstantial evidences. The onus rested upon the revenue has not been discharged at all and thus did not shift on to assessee. Consequently, in the absence of any credible proof of receipt of cash from assessee, the apparent has to be taken as real i.e. Sunderdeep Builders have repaid ₹ 4 Crore through banking channel in discharge of its existing outstanding liability as a matter of course. The CIT(A) has correctly appreciated the facts and circumstances in its entirety and has come to a rightful conclusion in this regard and thus exonerating the assessee from unvouched and unsupported tax liability. The CIT(A) has rightly observed that the allegation of accommodation entry is not sustainable by appreciating the fact that during the F.Y. 2008-09 relevant to AY 2009-10, there was opening receivable by the assessee from M/s. Sunderdeep Builders (Prop.-Rajesh Sunderdas Vaswani) pegged at ₹ 1 Crore which was given as a loan / advances by the assessee company through regular books of accounts prior to F.Y. 2008-09. - On holistic appreciation of factual position, we see no error in the conclusion drawn by the CIT(A). Issues Involved:1. Validity of jurisdiction assumed under Section 147 of the Income Tax Act.2. Deletion of addition of Rs. 4,00,00,000 on account of unexplained credit under Section 68 of the Act.Issue-wise Detailed Analysis:1. Validity of Jurisdiction Assumed Under Section 147 of the Income Tax Act:The assessee challenged the jurisdiction assumed by the Assessing Officer (AO) under Section 147 of the Act, arguing that the proceedings were invalid as they were based on information and documents received from the AO of the searched person (Venus Group), which amounted to 'borrowed satisfaction' and non-application of mind. The assessee also contended that the correct jurisdiction should have been under Section 153C of the Act.CIT(A) Decision:The CIT(A) upheld the jurisdiction assumed under Section 147, stating that there is no bar on the AO using information found during the search of another entity. The CIT(A) dismissed the assessee's reliance on various case laws, stating that the facts of the present case were different.Tribunal's Analysis:The Tribunal found no substance in the assessee's arguments. It noted that prior to the amendment in Section 153C, the jurisdiction under this section would come into play only if the seized documents 'belonged to' the third person (the assessee). Since no such satisfaction was formed by the AO of the searched person, the AO of the assessee rightly resorted to Section 147. The Tribunal also dismissed the argument of 'borrowed satisfaction,' noting that the AO had conducted pre-verification of the records before forming a belief of income escapement. The Tribunal further rejected the argument of 'change of opinion,' stating that new information from the search provided a fresh basis for reopening the assessment.Conclusion:The Tribunal upheld the jurisdiction assumed under Section 147 and dismissed the cross appeal of the assessee challenging this jurisdiction.2. Deletion of Addition of Rs. 4,00,00,000 on Account of Unexplained Credit Under Section 68 of the Act:The AO had made an addition of Rs. 4 Crore to the total income of the assessee under Section 68, based on seized materials from the Venus Group, alleging that the assessee had paid unaccounted cash in exchange for accommodation entries through banking channels.CIT(A) Decision:The CIT(A) deleted the addition, stating that the AO had not brought any cogent material or credible evidence to support the allegation of accommodation entry. The CIT(A) noted that the seized documents did not directly implicate the assessee and that the statement of the accountant of the Venus Group did not provide any relevant information about the assessee's involvement.Tribunal's Analysis:The Tribunal agreed with the CIT(A), noting that the AO had failed to establish a direct link between the seized materials and the assessee. The Tribunal emphasized that the statement of the accountant, who merely recorded entries as per the directions of the Venus Group, was not sufficient to implicate the assessee. The Tribunal also noted that no enquiry was made from the key persons (Vaswani brothers) of the Venus Group, and the assessee was denied the opportunity to cross-examine them. The Tribunal concluded that the AO's action was based on assumptions and lacked credible evidence.Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 4 Crore under Section 68, agreeing that the AO's action was unsustainable in law.Final Order:In the result, both the appeal of the Revenue and the cross appeal of the assessee were dismissed. The cross objection filed by the assessee was also dismissed as infructuous. The Tribunal upheld the CIT(A)'s decision on both the issues of jurisdiction and the deletion of the addition under Section 68.Order Pronounced on 13/04/2021.