2021 (12) TMI 865 - AT - Income Tax

Reassessment upheld in unexplained cash credits case; CIT(A) emphasizes creditworthiness & genuineness.

The reassessment proceedings under Section 147 r.w.s. 143(3) were upheld by the CIT(A) in a case involving unexplained cash credits under Section 68 of ... Reopening of assessment u/s 147 - Unexplained cash credits u/s 68 - HELD THAT:- From reasons recorded for reopening proceedings u/s 147 and there is no discrepancy in the reasons. Hence assessee’s appeal is dismissed. It is seen that the information received from investigation wing was part of the reopening, yet the reopening was based on the records and facts of the assessee’s case. As observed in the reasons for reopening that certain cash withdrawals was seen in respect of assessee company’s records. The CIT(A) has correctly stated that the information on the basis of which AO had initiated proceedings under Section 147 was certain and it could be construed to be sufficient and relevant material on the basis of which a reasonable person could have formed a belief that income had escaped assessment. Therefore, the reassessment proceedings initiated by the Assessing Officer under Section 147/148 is valid and rightly upheld by the CIT(A). There is no need to interfere with the findings of the CIT(A). Hence, Ground No. 1 to 4 in assessee’s appeal are dismissed. Addition on account of unexplained cash credits u/s 68 - AO has given a categorical finding that evidences were not produced related to creditworthiness and genuineness of the sources of funds and the parties thereon. Though the CIT(A) has mentioned in general statement that evidences were put up, but from the records it is seen that these are general statements and the source of the funds upon which the creditworthiness is depended has not been established by the assessee through any document and the condition of creditworthiness was not satisfied. From the perusal of records it can be seen that the assessee has also not given plausible explanation in respect of genuineness of the transactions. As regards, the unsecured loan taken from Shri Sanjeev Dhingra, no bank statement was filed before the Revenue authorities. Hence, it deems appropriate to remand back both the issues to the file of the Assessing Officer for proper adjudication on verification of the evidences. Needless to say the assessee be given opportunity of hearing by following principles of natural justice Issues:1. Addition of unexplained cash credits under section 68 of the IT Act.2. Legality and jurisdiction of notice issued under Section 148 and reassessment order passed under Section 147 r.w.s. 143(3).Issue 1: Addition of unexplained cash credits under section 68 of the IT Act:The assessee, a Private Limited Company, filed its return of income for Assessment Year 2010-11, declaring a total loss. The Assessing Officer made additions under section 68 for unexplained cash credits totaling Rs. 4,15,00,000. The CIT(A) partly allowed the appeal, prompting the assessee to contest the jurisdiction related to Section 148. The assessee argued that the reasons recorded for reopening were unjustifiable, with no proper application of mind or investigation based on tangible material. The reopening was challenged as being without jurisdiction and solely relying on information from the investigation wing. The CIT(A) upheld the reassessment proceedings, stating that the reasons for reopening were sufficient and relevant, forming a reasonable belief that income had escaped assessment. The reassessment was deemed valid and upheld, dismissing the grounds raised by the assessee.Issue 2: Legality and jurisdiction of notice issued under Section 148 and reassessment order passed under Section 147 r.w.s. 143(3):The assessee argued that the notice issued under Section 148 and the reassessment order passed under Section 147 r.w.s. 143(3) were illegal, bad in law, and lacked jurisdiction. The reasons for reopening were challenged as not based on proper investigation or tangible material, leading to an unlawful reopening of the case. The assessee contended that the CIT(A) erred in confirming the reopening without understanding the facts and legal provisions correctly. However, the Ld. DR supported the proper recording of reasons for reopening by the Assessing Officer. The CIT(A) upheld the deletion of the addition on merit, stating that the relevant material establishing the creditworthiness and genuineness of lenders was presented before the Assessing Officer. Despite the general statements made by the CIT(A), the source of funds and creditworthiness were not adequately established by the assessee. Therefore, the issues related to unexplained cash credits under section 68 were remanded back to the Assessing Officer for proper adjudication, with the necessity of providing the assessee an opportunity of hearing following principles of natural justice.In conclusion, the appeal of the revenue was partly allowed for statistical purposes, while the appeal of the assessee was dismissed. The judgment highlighted the importance of establishing creditworthiness and genuineness of sources in cases of unexplained cash credits and emphasized the need for proper adjudication based on verified evidence.