2024 (6) TMI 1514 - AT - Income Tax

Unexplained cash credit cannot be taxed in year when share application money received earlier; AO to reopen under Section 147

ITAT MUMBAI dismissed the assessee's appeal, holding the unexplained cash credit addition could not be made in the year under review because share ... Unexplained cash credit u/s 68 - Year of assessment - Reopening of assessment - as submitted that the share application money was received in the earlier years and during the year under consideration, the shares were allotted, thus the addition u/s 68 could not have been made in this year - HELD THAT:- We noticed that the assessee had received share application money in the earliers and not during the year under consideration. Hence, the AO and CIT(A) have accepted that the addition u/s 68 of the Act could not have been made in the year under consideration. We notice that the CIT(A) has only directed the AO to examine the receipt of money in the year in which they were received by reopening the assessment of the relevant years. Even without such specific direction, it is always open for the AO to reopen the assessment of the year in which the amounts were claimed to have been received. This is so provided in sec.150 of the Act. Hence we do not find any reason to interfere with the directions so given by the Ld CIT(A). Appeal filed by the assessee is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether an addition under section 68 (unexplained cash credit) can be sustained in an assessment year where the share premium/allotment was only effected but the share application money had been received in an earlier year. 2. Whether the appellate authority (CIT(A)) can direct the assessing officer to examine the creditworthiness of share applicants and associated parties by reopening the assessment(s) for the earlier year(s) in which the money was received, and whether such direction is legally permissible. 3. The scope of the assessing officer's power to reopen assessments in the relevant year where receipt of share application money actually occurred, and whether a specific direction from the appellate authority is necessary to enable such reopening (interaction with sec. 150 as referred to in the judgment). ISSUE-WISE DETAILED ANALYSIS Issue 1: Proper year for making addition under section 68 where share application money was received in an earlier year Legal framework: The taxability or treatment of sums claimed as share capital/premium is to be examined in the year in which the monies were received; an addition under section 68 addresses unexplained credits (including share application money) in the year of receipt. Precedent Treatment: No earlier authorities were cited or considered in the decision for this point; the Tribunal's analysis rests on temporal application of section 68 as applied by the AO and accepted by the CIT(A). Interpretation and reasoning: The record showed that share application monies were received in earlier years and shares were allotted in the assessment year under consideration. Both the AO and the CIT(A) accepted that the addition under section 68 could not properly be made in the year in which allotment occurred if no receipt took place in that year. The Tribunal endorsed that factual-demonstrable receipt year determines the year for invoking section 68. Ratio vs. Obiter: Ratio - an addition under section 68 cannot be sustained in a year where there was no receipt of the alleged unexplained credit; the relevant year for examination is the year of receipt. Conclusion: The Tribunal agreed with the appellate authority's deletion of the addition in the assessment year where only allotment occurred and not receipt, implicitly holding that the proper year for any inquiry under section 68 is the year when the share application money was actually received. Issue 2: Legality and scope of CIT(A)'s direction to reopen earlier year assessments to examine creditworthiness of share applicants and related parties Legal framework: The appellate authority directed the AO to examine creditworthiness by reopening assessment(s) of the year(s) in which the money was received; the judgment refers to sec. 150 as the statutory provision permitting the AO to reopen and make such examination in the relevant year(s). Precedent Treatment: The decision did not rely on or distinguish prior judicial authorities; the Tribunal assessed the propriety of the direction on principles of procedural permissibility and substantive relevance. Interpretation and reasoning: The CIT(A) required verification of creditworthiness of two trusts and two companies alleged to be sources of monies used to allot shares. Given that the monies were received in earlier years, the CIT(A) directed the AO to reopen the relevant earlier assessments to examine those receipts and credit entries. The Tribunal observed that even absent an explicit direction from the CIT(A), the AO retains the statutory ability to reopen and examine the year in which receipts occurred under the law (as noted by reference to sec.150). Thus, the direction was within permissible bounds and did not impose an impermissible or novel requirement on the AO. Ratio vs. Obiter: Ratio - an appellate authority may direct the assessing officer to examine creditworthiness in the relevant year by reopening that year's assessment where monies were received in that earlier year; such direction is not beyond permissible appellate action when the factual picture shows receipt in earlier years. Obiter - the statement that the AO could in any event reopen the relevant year independently is explanatory of procedure rather than a separate binding holding. Conclusion: The Tribunal found no infirmity in the CIT(A)'s direction to examine creditworthiness by reopening the year(s) in which monies were received; the direction was held to be lawful and justified by the facts that receipt occurred in earlier years. Issue 3: Assessing officer's independent power to reopen relevant earlier assessments and interaction with sec. 150 Legal framework: The Tribunal referred to sec.150 as the provision under which the AO may take action to examine matters in the relevant year where amounts were received; the judgment treated this as the enabling statutory route for re-examination of receipts in an earlier year. Precedent Treatment: No authorities were cited; the Tribunal relied on the statutory proposition that the AO can reopen and examine the relevant year. Interpretation and reasoning: The Tribunal explicitly noted that the CIT(A)'s direction was not essential to empower the AO to reopen earlier years and that it remains open to the AO to take action to reopen the assessment of the year in which the amounts were received in accordance with law (sec.150). The Tribunal thus treated the CIT(A)'s direction as an appropriate supervisory step rather than a jurisdictional prerequisite. Ratio vs. Obiter: Ratio - the AO has power to reopen and examine the assessment year in which the receipt of funds occurred, and appellate direction to do so is permissible but not strictly necessary to enable the AO to act; this interplay is central to the Tribunal's decision. Obiter - ancillary comments about procedure and permissibility beyond the immediate facts are explanatory. Conclusion: The Tribunal concluded that the CIT(A)'s direction to the AO to reopen the relevant year assessments and examine creditworthiness was acceptable, and even without such direction the AO could lawfully reopen the relevant year under the statutory scheme. Overall Conclusion The Tribunal dismissed the appeal against the CIT(A)'s directions. It upheld the deletion of the section 68 addition in the year of allotment where receipts occurred earlier, and it affirmed the appellate direction that the AO examine creditworthiness by reopening the assessment(s) for the year(s) in which the share application monies were actually received (while noting the AO's independent power to reopen such earlier assessments under sec.150).