2023 (12) TMI 409 - AT - Income Tax

Reassessment under Section 147 upheld despite late Section 143(2) notice, Section 68 addition confirmed for unproven creditors

ITAT Delhi dismissed the assessee's appeal challenging reassessment proceedings under Section 147. The tribunal held that notice under Section 143(2) ... Reopening of assessment under section 147/148 - validity and timing of notice under section 143(2) - subjective satisfaction / reason to believe for reopening - sanction for issuance of notice under section 151(1) - unexplained cash credits and burden of proof under section 68 - banking channel not conclusive evidence of genuineness - doctrines of human probability and substance over formReopening of assessment under section 147/148 - validity and timing of notice under section 143(2) - Validity of reassessment proceedings and the notice under section 143(2) issued before the assessee sought to treat its earlier return as response to the section 148 notice. - HELD THAT: - The Tribunal found that notice under section 148 was served on 30/03/2017 and the assessing officer issued notice under section 143(2) on 12/09/2017 after the time given to the assessee to file a return in response to the section 148 notice had lapsed. The assessee's subsequent request (02/11/2017) to treat the original return filed on 16/03/2011 as a return in response to the section 148 notice was held to be an impermissible attempt to retrospectively validate non-action. The Tribunal applied the principle that a litigant who sleeps over his rights cannot later invoke procedural bars and held that the 143(2) notice issued on 12/09/2017 was valid for framing assessment under section 143(3) read with section 147. Reliance on contrary case law by the assessee was held to be inapposite. [Paras 6]Notice under section 143(2) dated 12/09/2017 was valid and the reopening under section 147/148 was not vitiated by the timing of the 143(2) notice.Subjective satisfaction / reason to believe for reopening - Whether the assessing officer acted without independent application of mind and whether reopening required conclusive satisfaction of escapement of income. - HELD THAT: - The Tribunal reiterated that reopening under section 147 requires only a prima facie or subjective 'reason to believe' and not conclusive proof of escapement at the stage of initiating proceedings. The assessing officer possessed primary facts and materials supplied by the Investigation Wing enabling formation of a belief that income had escaped assessment. Formation of such belief is within the realm of subjective satisfaction and the final outcome of assessment proceedings is irrelevant to the validity of reopening. Consequently, absence of a conclusive finding at initiation does not invalidate the reopening. [Paras 8]Reopening was valid; no requirement of conclusive satisfaction at the stage of issuance of notice under section 148.Sanction for issuance of notice under section 151(1) - Allegation that the sanction under section 151(1) was mechanical and therefore the reassessment proceedings are invalid. - HELD THAT: - The Tribunal noted that ground alleging mechanical satisfaction did not emanate from the CIT(A)'s order and there was no application to admit additional grounds. On merits, after considering the reasons recorded by the assessing officer and the facts of the case, the Tribunal found no infirmity in the satisfaction recorded by the prescribed authority under section 151(1). Thus the statutory requirement for sanction to issue a notice beyond four years was held to have been satisfied. [Paras 10]Sanction under section 151(1) was valid; the challenge to sanction fails.Unexplained cash credits and burden of proof under section 68 - banking channel not conclusive evidence of genuineness - doctrines of human probability and substance over form - Whether the additions under section 68 were justified given the assessee's explanations and documents produced regarding share application money and sale of investments. - HELD THAT: - The assessing officer asked for details concerning identity of creditors, capacity of investors and genuineness of transactions. The assessee failed to furnish cogent evidence: confirmations were often undated or bore common language, some investor companies had meagre declared incomes inconsistent with large investments, addresses overlapped with the assessee, bank-trace revealed immediate outflows, and requisite documents (share application forms, share certificates, valuation reports) were not produced. The Tribunal agreed with the CIT(A)'s application of principles that mere receipt through banking channels or provision of PAN/returns is not conclusive; the assessee bears the burden to prove identity, capacity and genuineness and the AO must be satisfied with such explanation. Having regard to the improbabilities and absence of credible evidence, the additions under section 68 were upheld. [Paras 14, 15, 16, 17, 18]Additions under section 68 confirmed; the assessee failed to discharge the evidentiary burden as to identity, capacity and genuineness of the credits.Final Conclusion: The appeal is dismissed. Reopening of assessment for Assessment Year 2010-11, the notices issued, sanction for issuance of notice, and the additions made under section 68 were held valid and are confirmed. Issues Involved:1. Validity of assessment under Section 147/143(3) without notice under Section 143(2).2. Issuance of notice under Section 143(2) before filing return in response to notice under Section 148.3. Reassessment proceedings initiated without independent application of mind by the AO.4. Validity of sanction under Section 151 of the IT Act.5. Jurisdictional validity of the assessment.6. Addition under Section 68 regarding realization from sale of investments.7. Addition under Section 68 regarding share application money and unexplained cash credits.Summary:Issue 1 & 2: Validity of Assessment without Notice under Section 143(2)The Assessee argued that the assessment under Section 147/143(3) was invalid as no notice under Section 143(2) was issued against the return filed on 02/11/2017 in response to notice under Section 148. The Tribunal found that the notice under Section 143(2) issued on 12/09/2017 was valid, as the Assessee failed to file the return within the stipulated time. The Tribunal dismissed Grounds 1 & 2, stating that the Assessee cannot take advantage of its own wrong.Issue 3: Reassessment Proceedings without Independent Application of MindThe Assessee contended that the reassessment proceedings were initiated without the AO's independent application of mind. The Tribunal held that only a prima facie opinion of income escapement is required for reopening the assessment, and the AO had sufficient material to form such an opinion. Ground 3 was dismissed.Issue 4: Validity of Sanction under Section 151The Assessee argued that the sanction under Section 151 showed mechanical satisfaction by the sanctioning authority. The Tribunal found no infirmity in the sanction process, as the required satisfaction was duly recorded. Ground 4 was dismissed.Issue 5: Jurisdictional Validity of AssessmentThe Tribunal noted that the Assessee failed to establish how the reopening of the assessment violated Section 147 read with Section 148. Ground 5 was dismissed.Issue 6 & 7: Addition under Section 68The Assessee challenged the addition of Rs. 7,54,01,000/- and Rs. 8,18,01,000/- under Section 68, arguing that the amounts were from the sale of investments and share application money, respectively. The Tribunal found that the Assessee failed to prove the identity, capacity, and genuineness of the creditors and transactions. The Tribunal upheld the addition, noting that the Assessee did not provide sufficient evidence to support its claims. Grounds 6 & 7 were dismissed.Conclusion:The appeal of the Assessee was dismissed in its entirety. The Tribunal upheld the validity of the assessment and the additions made under Section 68, finding no merit in the Assessee's grounds.