2021 (10) TMI 1241 - AT - Income Tax

Tribunal directs fresh adjudication on loan transactions, stresses importance of thorough investigation

The Tribunal partly allowed the appeal, directing a fresh adjudication on the genuineness of loan transactions involving accommodation entries through ... Validity of Reopening of assessment u/s 147 - Addition of commission income for providing accommodation entries through unsecured loans - HELD THAT:- Admittedly, the return of income filed by the assessee was not subjected to scrutiny and was simply processed under section 143(1) of the Act. Subsequently, the assessing officer received specific information from the Investigation Wing indicating that certain unsecured loans advanced by the assessee during the year are non genuine. Based on such opinion, the assessing officer reopened the assessment. Thus, it is very much clear since the return of income filed by the assessee was simply processed under section 143(1) of the Act, the assessing officer had no occasion to verify the genuineness of the loan transaction. When the assessing officer received specific information concerning the genuineness of the loan transaction, he had tangible material available before him to reopen the assessment. While recording the reasons for reopening the assessment, the assessing officer has to prima facie form a belief that the material on record indicate escapement of income. At the stage of reopening, the assessing officer is not required to record any conclusive finding regarding the escapement of income, as, that is a matter which can be ascertained in course of assessment proceedings. Thus, in the facts of the present case, the assessing officer had tangible material to form a belief that income has escaped assessment. That being the case, in our considered view, the assessing officer has validly initiated proceedings under section 147. Genuineness of unsecured loan - The source from which the assessee had received such funds has not been properly explained either before the departmental authorities or even before us. Therefore, this aspect needs to be factually verified as it raises doubt regarding the loan transaction. However, merely based on such doubt and suspicion, no addition can be made as the issue requires further enquiry and investigation. At this stage, it is necessary to observe, in assessee’s own case in assessment year 2010-11, learned Commissioner (Appeals) has accepted similar loan transaction entered by the assessee with two parties, including, a common party as genuine and the addition of commission income has been deleted. Thus, these aspects will also have some bearing on the issue. Considering the fact that proper enquiry has not been made with regard to the source of funds available in assessee’s bank account, we are inclined to restore the issue to the assessing officer for fresh adjudication after proper enquiry and only after due opportunity of being heard to the assessee. Ground 2 is allowed for statistical purposes. Issues:1. Addition of commission income for providing accommodation entries through unsecured loans.2. Validity of reopening of assessment under section 147 of the Income Tax Act, 1961.3. Genuineness of unsecured loan transactions.Analysis:Issue 1: Addition of Commission IncomeThe appellant challenged the addition of commission income for providing accommodation entries through unsecured loans to two parties. The assessing officer concluded that the loans were non-genuine and in the nature of accommodation entries, adding an amount to the appellant's income. The Commissioner (Appeals) confirmed this addition. The appellant argued that the loan transactions were genuine as they were done through banking channels, with TDS deducted and claimed. They also cited a previous year's decision where a similar dispute was resolved in their favor. The departmental representative contended that the genuineness of the loan transactions was not established, pointing to significant fund transfers before the loans were advanced.Issue 2: Validity of Reopening of AssessmentThe appellant raised additional grounds challenging the validity of the assessment's reopening under section 147 of the Act. They argued that the assessing officer lacked tangible material to conclude that the loans were accommodation entries, rendering the reopening invalid. The departmental representative supported the reopening, stating it was based on concrete evidence. The Tribunal held that the assessing officer had validly initiated proceedings under section 147 as specific information indicated non-genuine loans, justifying the reopening.Issue 3: Genuineness of Unsecured Loan TransactionsThe Tribunal noted doubts regarding the genuineness of the unsecured loan transactions due to significant fund transfers before loan advancements, raising suspicion. While acknowledging the need for further investigation, the Tribunal emphasized that mere doubt does not warrant an addition. Referring to a previous year's decision where similar transactions were accepted as genuine, the Tribunal decided to restore the issue to the assessing officer for fresh adjudication after proper inquiry and a hearing.ConclusionThe Tribunal partly allowed the appeal for statistical purposes, directing a fresh adjudication of the issues related to the genuineness of the loan transactions. The decision highlighted the importance of thorough investigation and proper verification in tax assessments to ensure fairness and accuracy.This detailed analysis covers the key issues raised in the legal judgment, providing a comprehensive overview of the arguments presented and the Tribunal's decision on each issue.