2024 (2) TMI 1608 - AT - Income Tax

Reopening under s.147 invalid; unexplained cash credit addition under s.68 dropped as revenue appeal dismissed

ACIT Central Circle -2, New Delhi Versus Green Gem Estates Pvt. Ltd.

ITAT Delhi dismissed the revenue's appeal concerning reopening of assessment under s.147 and addition under s.68 for alleged unexplained cash credit ... Reopening of assessment u/s 147 - unexplained cash credit u/s. 68 - assessee has received Rs. 29.85 crores as advance from customers namely Queen Commercial Private Limited Group Company which in turn received money from Kolkata based company - HELD THAT:- In our considered opinion once the CIT(A) has held that reopening of the assessment is not sustainable thereby quashing the assessment order and the revenue has not raised this issue before us the findings of the CIT(A) have attained finality. Since the assessment order has been quashed we do not find it necessary to dwell into the merits of the case. Appeal of the revenue is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the reopening of assessment under section 147/notice under section 148 is sustainable where the reasons recorded are based on information from investigation wing and lack material nexus, independent application of mind, or specific facts evidencing escapement of income. 2. Whether an addition under section 68 (unexplained cash credit) can be sustained where reopening is held invalid by the appellate authority and the revenue does not contest that finding on further appeal. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Validity of reassessment action under sections 147/148 Legal framework: Reopening of assessment under section 147/notice under section 148 requires the Assessing Officer to form a belief, based on material and reasons recorded, that income has escaped assessment; such belief must be honest, reasonable, founded on relevant material facts and not on mere suspicion, conjecture or unverified information. Precedent treatment: The Tribunal relied on established principles from higher judicial decisions that require (a) clear, self-explanatory reasons manifesting application of mind; (b) existence of specific and reliable facts having a live nexus with alleged escapement; (c) that mere information from investigation wing, without independent verification, cannot sustain reopening; and (d) reasons must disclose what material was not fully and truly disclosed by the assessee to justify reassessment. These authorities were applied and followed. Interpretation and reasoning: The recorded reasons described funds as 'unaccounted' without specifying how such funds were generated or what material established that characterization; there was no explanation of evidential basis to link alleged unaccounted income from real estate to share premium in the intermediary company. Bank statements showed receipts by cheque/RTGS from multiple parties, not cash or transfers from the assessee, undermining the AO's conclusion. The AO's satisfaction relied on unverified information and conjecture, without independent enquiries or disclosure of the missing material that would establish escapement. Consequently, the reasons lacked clarity, specificity and a direct nexus to the alleged escapement of income. Ratio vs. Obiter: Ratio - the reassessment was invalid because the reasons recorded were vague, speculative and lacked independent application of mind and material nexus required for reopening. Obiter - reinforcing statements on the need to examine bank statements and mode of receipt as factors relevant to evaluating claims of unaccounted funds. Conclusions: The reopening under section 147/148 is quashed. The appellate authority's conclusion that the reasons are insufficient, and thus reassessment is not sustainable, is the operative ratio on this issue. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Sustenance of addition under section 68 after quashing reassessment Legal framework: An addition under section 68 for unexplained cash credit requires the AO to discharge the burden of proving that credited amounts are unexplained and attributable to the assessee as unexplained income; where reassessment is invalid, the foundational assessment order giving rise to such addition is vitiated. Precedent treatment: The Tribunal applied the principle that where the appellate authority quashes reassessment for lack of valid reasons, the findings in the reassessment order lose legal efficacy and consequent additions need not be adjudicated further unless the revenue challenges the quashing. Interpretation and reasoning: The CIT(A) had quashed the reassessment on grounds that the AO's reasons were speculative and unsupported; the revenue did not challenge the quashing before the Tribunal. Given the quashment attained finality, the Tribunal found it unnecessary to examine merits of the addition under section 68. The practical legal consequence is that an addition based upon a vitiated reassessment cannot be sustained in the absence of a successful challenge to the quashing. Ratio vs. Obiter: Ratio - where reassessment is quashed by the appellate authority and that quashing is not challenged, the Tribunal will dismiss an appeal by the revenue against deletion of additions made in the quashed assessment without adjudicating merits of such additions. Obiter - the observation that had reopening been sustained, detailed examination of documentary evidence (bank statements, source tracing) would be required to decide section 68 issues. Conclusions: The addition under section 68 was deleted by the CIT(A); because the reassessment order was quashed and that issue was not contested before the Tribunal, the deletion stands and the revenue's appeal is dismissed without deciding the substantive merits of the unexplained cash credit claim. Cross-References and Consequential Observations 1. The findings on reopening (Issue 1) are dispositive of the revenue's sole grievance; therefore, the Tribunal refrained from examining the merits of the section 68 addition (Issue 2), consistent with the principle that a quashed assessment order removes the foundation for consequential additions unless the quashment is successfully challenged. 2. The decision emphasizes the requirement that reasons for reopening must disclose the specific material lacking in the original record and demonstrate a direct nexus to the alleged escapement; reliance solely on investigation reports without independent verification by the AO will render reopening unsustainable.