2021 (9) TMI 1124 - AT - Income Tax

Tribunal Upholds Assessment Reopening & Unexplained Cash Credit Addition

Deputy Commissioner of Income Tax Circle 15 (1) (2), Mumbai Versus Leena Power Tech Engineers Pvt Ltd

Deputy Commissioner of Income Tax Circle 15 (1) (2), Mumbai Versus Leena Power Tech Engineers Pvt Ltd - TMI Issues Involved:1. Validity of reopening the assessment under Section 147 of the Income Tax Act, 1961.2. Addition of unexplained cash credit under Section 68 of the Income Tax Act, 1961.Detailed Analysis:1. Validity of Reopening the Assessment:The Assessing Officer (AO) reopened the assessment based on information from the investigation wing indicating that the assessee received share application money from entities involved in money laundering. The assessee argued that all material facts were disclosed during the original assessment, and the reopening was unjustified. However, the tribunal upheld the AO's action, citing that mere disclosure of transactions at the time of original assessment does not qualify as 'true and full' disclosure if subsequent information reveals the transactions to be bogus. The tribunal relied on the Supreme Court's judgment in Phool Chand Bajrang Lal Vs ITO, which allows reopening if new information indicates that the original transactions were false.2. Addition of Unexplained Cash Credit:The AO treated the share application money received from Rohini Vyapar Pvt Ltd (RVPL) and Manbhawan Commercial Pvt Ltd (MCPL) as unexplained credits under Section 68, amounting to Rs. 8,13,29,600. The AO's decision was based on the investigation report indicating that these entities were shell companies involved in a money-laundering racket. The assessee provided documentary evidence, including PAN details, income tax returns, and financial statements of the share subscribers, to prove the genuineness of the transactions. However, the AO found these documents insufficient to establish the genuineness of the transactions.The tribunal noted several discrepancies in the financial statements and bank transactions of RVPL and MCPL, indicating that these entities acted as conduits for routing funds. The tribunal observed that RVPL and MCPL had negligible business activities and primarily invested in the assessee's shares at a high premium. The tribunal also found that the share premium valuation provided by the assessee was based on unrealistic assumptions and incorrect computations, further questioning the genuineness of the transactions.The tribunal emphasized that the onus is on the assessee to prove the genuineness of the share application money, which the assessee failed to do. The tribunal also highlighted the importance of examining the transactions in the light of human probabilities and ground realities, as observed by the Supreme Court in Durga Prasad More's case.Conclusion:The tribunal upheld the reopening of the assessment under Section 147 and restored the addition of Rs. 8,13,29,600 as unexplained cash credit under Section 68. The tribunal concluded that the assessee failed to prove the genuineness of the share application money and that the transactions were part of a money-laundering racket involving shell companies. The tribunal's decision was based on a thorough analysis of the financial statements, bank transactions, and the overall circumstances of the case.