2022 (10) TMI 1278 - AT - Income Tax

Assessment reopening upheld for unexplained cash credit from bogus long-term capital gains through paper company accommodation entries under sections 147 and 68.

Smt. Paramadevi Tekriwal Versus The Income-tax Officer, Ward 1 (5), Bhavnagar

ITAT Hyderabad upheld the reopening of assessment under section 147 and addition under section 68 treating sale consideration of equity shares as ... Reopening of assessment u/s 147 - Addition u/s 68 treating the sale consideration of the equity shares of KGN Enterprise Ltd. as unexplained cash credit - HELD THAT:- As per the specific information received by AO from Investigation Wing of the Income-tax Department- Ahmedabad, KGN Enterprise Ltd. was a paper company and the shares of the said company were used for providing accommodation entries by showing purchase and sale transactions in such a way that the same resulted in Long Term Capital Gains to the concerned parties which was exempt from tax. Since the assessee was one of such beneficiaries who received the bogus Long Term Capital Gains in the scrip of KGN Enterprise Ltd. which was claimed to be exempt in the return of income, the AO, in our opinion, had a reason to believe on the basis of tangible material that the income of the assessee in the form of bogus Long Term Capital Gains had escaped assessment as rightly held by the learned CIT(A) vide his impugned order. The reopening of assessment thus was in accordance with law. Addition u/s 68 - This issue is squarely covered inter alia by the decisions of this Tribunal in the case of Pawankumar M. Sanghvi [2017 (5) TMI 1159 - ITAT AHMEDABAD] as well as in the case of Shamim M. Bharwani [2015 (4) TMI 257 - ITAT MUMBAI] which have been relied upon by the learned CIT(A) in his impugned order to decide the issue against the assessee wherein similar transactions were held to be bogus and sham.. Thus, we find no infirmity in the impugned order of the learned CIT(A) confirming the addition made by the AO u/s 68 by treating the sale consideration received by the assessee on sale of shares of KGN Enterprise Ltd. as unexplained cash credit. Ground No. 2 of the assessee’s appeal is accordingly dismissed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are: Whether the reopening of the assessment under Section 147/148 of the Income-tax Act, 1961, by the Assessing Officer was valid. Whether the addition made by the Assessing Officer under Section 68 of the Act by treating the sale consideration of shares of KGN Enterprise Ltd. as unexplained cash credit was justified.ISSUE-WISE DETAILED ANALYSIS1. Validity of Reopening of Assessment under Section 147/148Relevant Legal Framework and Precedents: The reopening of an assessment under Section 147/148 is permissible when the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment. The legal framework requires the presence of tangible material to justify such belief.Court's Interpretation and Reasoning: The Tribunal upheld the validity of the reopening, agreeing with the CIT(A)'s finding that the Assessing Officer had credible information from the Investigation Wing that KGN Enterprise Ltd. was a paper company involved in providing accommodation entries in the form of Long Term Capital Gains. This information constituted tangible material justifying the reopening.Application of Law to Facts: The Tribunal found that the Assessing Officer had a valid reason to believe that income in the form of bogus Long Term Capital Gains had escaped assessment, based on specific information about the misuse of KGN Enterprise Ltd.'s shares for tax evasion.Treatment of Competing Arguments: The appellant contended that the reopening was based solely on information from the Investigation Wing and statements recorded from third parties. The Tribunal dismissed this argument, noting that the law permits reopening based on credible information from any source.Conclusions: The Tribunal concluded that the reopening of the assessment was lawful and dismissed the appellant's challenge to its validity.2. Addition under Section 68 as Unexplained Cash CreditRelevant Legal Framework and Precedents: Section 68 of the Income-tax Act places the onus on the taxpayer to satisfactorily explain the nature and source of any sum credited in their books. Failure to do so allows the sum to be treated as unexplained cash credit.Court's Interpretation and Reasoning: The Tribunal agreed with the CIT(A) that the appellant failed to discharge the onus of proving the genuineness of the transactions involving KGN Enterprise Ltd.'s shares. The evidence suggested that the transactions were part of a scheme to convert unaccounted money into accounted money through bogus Long Term Capital Gains.Key Evidence and Findings: The Tribunal noted several suspicious aspects of the transactions, such as the lack of payment for shares, the abnormal rise and fall in share prices, and the involvement of defunct companies. These factors cast doubt on the genuineness of the transactions.Application of Law to Facts: The Tribunal applied the principles from various judicial precedents, including the Supreme Court's decisions in Sumati Dayal and Durga Prasad More, which emphasize the need to consider human probabilities and surrounding circumstances in determining the genuineness of transactions.Treatment of Competing Arguments: The appellant argued that the transactions were genuine and supported by documentation. However, the Tribunal found that the preponderance of evidence indicated otherwise, supporting the Assessing Officer's conclusion that the transactions were bogus.Conclusions: The Tribunal upheld the addition under Section 68, agreeing with the CIT(A) that the sale consideration of shares was unexplained cash credit.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal reiterated the principle from Sumati Dayal: 'The matter has to be considered in the light of human probabilities and after considering surrounding circumstances.'Core Principles Established: The judgment reinforces the principle that the onus is on the taxpayer to prove the genuineness of transactions and that tax authorities are entitled to look beyond the apparent to ascertain the real nature of transactions.Final Determinations on Each Issue: The Tribunal dismissed the appeal, upholding both the validity of the reopening of the assessment and the addition made under Section 68 as unexplained cash credit.