2022 (10) TMI 841 - AT - Income Tax

Tribunal dismisses revenue's appeal, emphasizes lack of evidence in alleged benami transactions.

The Tribunal upheld the CIT(A)'s decision, ruling that the AO failed to substantiate that the Kolkata-based companies were benamis of the assessee or that ... Undisclosed income of the assessee - benami investment - benami transaction of the assessee through 15 Kolkata based corporate entities - HELD THAT:- The original shareholding and the capital holding of Rohini Resorts Pvt. Ltd. remained proved and substantiated. The change that took place in the books of Rohini Resorts Pvt. Ltd. is only insofar as the shareholders register gets modified. This is not a case where the corporate entities have put the money into Rohini Resorts Pvt. Ltd. and the Rohini Resorts Pvt. Ltd. has in turn paid off their shareholders. Thus, the entries, if at all, are not in the books of the assessee herein nor in the books of any of the entities which are under the control of the assessee herein. Clearly when there are no entries in the books of the assessee, the assessee cannot be asked to explain the entries of other corporate entities in respect of whom no financial connection has been found even in the course of search on the assessee. It was for the AO to produce or investigate and find out some financial connection between the said Kolkata based corporate entities and the assessee herein. It must also be mentioned here that in the assessment order also though the AO refers to an investigation report by the Kolkata based Investigation Wing of the department, what is conspicuous by its absence is the connection between the said corporate entities, which are Kolkata based and the assessee. In the circumstances, we are of the view that the ld. CIT(A) is right in deleting the addition representing the alleged benami transaction of the assessee through 15 Kolkata based corporate entities. AO has used the term “benami” but the AO has not been able to prove that the said 15 Kolkata based corporate entities are under the control of the assessee herein much less there is any financial connection. It is also noticed that the ld. CIT(A) has followed the judicial discipline in following the decision of the coordinate bench of the Tribunal in assessee‟s own case for A.Ys.2005-2006 & 2006-2007 for the purpose of deleting the impugned addition. Appeal of the revenue and the cross objection of the assessee are dismissed. Issues Involved:1. Validity of the reopening of the assessment.2. Legitimacy of the addition of Rs.2,90,00,000/- as benami investment.3. Adequacy of the investigation by the Assessing Officer (AO) and the Investigation Wing.4. Applicability of judicial precedents in the assessee's case.Issue-wise Detailed Analysis:1. Validity of the reopening of the assessment:The assessee raised technical grounds regarding the reopening of the assessment. The original assessment was annulled by the CIT(A) on the basis that the AO was not competent to issue a notice under Section 153A(a) of the Act for the assessment year 2007-2008. The search took place on 15.03.2007, and the assessment order dated 23.12.2009 was declared a nullity. Consequently, a notice under Section 148 was issued on 17.04.2012 after recording reasons and obtaining approval from the JCIT Range-1, Sambalpur.2. Legitimacy of the addition of Rs.2,90,00,000/- as benami investment:The revenue challenged the deletion of the addition of Rs.2,90,00,000/- by the CIT(A). The AO had treated the investments made by 15 Kolkata-based companies in the shares of Rohini Resorts Pvt. Ltd. as the benami investments of the assessee. The AO argued that the consideration paid by these companies was the undisclosed income of the assessee. However, the CIT(A) deleted the addition, stating that the AO failed to prove that these companies were benamis of the assessee and relied solely on the investigation report without conducting an independent investigation.3. Adequacy of the investigation by the Assessing Officer (AO) and the Investigation Wing:The CIT(A) criticized the AO for not proving the connection between the Kolkata-based companies and the assessee. The CIT(A) noted that the AO relied on the investigation report from the Kolkata Investigation Wing but did not conduct any further inquiries. The CIT(A) held that the AO had not demonstrated that the funds used by these companies were actually the assessee's undisclosed income. The CIT(A) also pointed out that the AO did not make any attempt to locate these companies or verify their existence and operations.4. Applicability of judicial precedents in the assessee's case:The CIT(A) relied on the decision of the coordinate bench of the Tribunal in the assessee's own case for the assessment years 2005-2006 and 2006-2007, where it was held that no addition could be made in the hands of the assessee under Sections 68 or 69 of the Act as the credits did not appear in the assessee's books. The CIT(A) followed this precedent to delete the impugned addition, noting that the AO did not establish any financial connection between the Kolkata-based companies and the assessee.Conclusion:The Tribunal upheld the CIT(A)'s order, concluding that the AO failed to prove that the Kolkata-based companies were benamis of the assessee or that the funds used by these companies were the assessee's undisclosed income. The Tribunal noted that the entries were not in the assessee's books and no financial connection was found during the search. Consequently, the appeal filed by the revenue was dismissed, and the cross objection of the assessee was dismissed as withdrawn. The Tribunal emphasized that the AO should have conducted a thorough investigation to establish the alleged benami transactions. The order was pronounced in the open court on 19/10/2022.