IT Act: Deletion of Addition Upheld, Re-assessment Invalid

The Departmental appeal challenging the deletion of an addition under Section 68 of the IT Act was dismissed. The CIT(A) found the statement of a key witness unreliable and lacking corroborating evidence, leading to the deletion of the addition. The Tribunal upheld this decision, emphasizing the need for substantial evidence for additions. The assessee's cross objections regarding the validity of re-assessment under Section 148 were upheld, as the AO had based the re-assessment on insufficient grounds. Consequently, the Revenue's appeal was dismissed, and the cross objections of the assessee were allowed.

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Issues Involved:
1. Deletion of addition made by AO under Section 68 of IT Act.
2. Validity of jurisdiction for passing a re-assessment order under Section 148 of IT Act.

Summary:

Issue 1: Deletion of Addition under Section 68 of IT Act

The Departmental appeal was directed against the deletion of an addition of Rs. 3,56,79,600/- made by the AO under Section 68 of the IT Act on account of unexplained cash credits. The AO had primarily relied on the statement of Shri Rajesh Bhagat, who was the Director in M/s Rajesh Metal India, the predecessor entity of the assessee. The CIT(A) set aside the addition, observing that the statement of Shri Bhagat was not reliable as he had retracted and given divergent statements on different occasions. The CIT(A) also noted that no cogent reasoning or evidence was relied upon by the AO, and nothing was found during the search to substantiate that the appellant had taken this amount as a bogus entry and routed its funds for the year under consideration.

The Revenue contended that the CIT(A) erred in law and on facts in deleting the addition without appreciating the fact that Shri Bhagat had admitted twice in his statement that the assessee company was involved in providing accommodation entries. However, the Tribunal observed that the statement of Shri Bhagat, being a standalone evidence, could not be the basis for additions without corroborating material. The Tribunal upheld the CIT(A)'s decision, stating that the retracted statement of Shri Bhagat was not a reliable piece of evidence and could not be the sole basis for reopening the assessment.

Issue 2: Validity of Jurisdiction for Re-assessment under Section 148 of IT Act

The assessee filed cross objections, challenging the validity of the jurisdiction of the AO for passing a re-assessment order under Section 148 of the IT Act. The assessee argued that the reasons for reopening were merely based on information from the investigation wing without independent application of mind or investigation, making the re-opening wholly on the basis of borrowed satisfaction. The Tribunal noted that the AO had relied heavily on the statement of Shri Bhagat and the suggestion of DDIT (Investigation) without any corroborating material. The Tribunal found that the AO had fallen in error in relying on the retracted statement of Shri Bhagat and had not substantiated the material on which he doubted the creditworthiness of the investing companies. The Tribunal concluded that the re-assessment proceedings were illegal and not sustainable for want of tangible material, and the cross objections deserved to be sustained.

Consequently, the appeal of the Revenue was dismissed, and the cross objections of the assessee were allowed.

Order pronounced in the open court on 11/07/2023

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