2025 (5) TMI 1956 - AT - Income Tax

Assessment reopening under section 147 quashed due to inadequate inquiry and reliance on unverified portal information

Mr. Sunil Gajraj Yadav Versus ITO – 42 (3) (4), Mumbai

ITAT Mumbai allowed the appeal for statistical purposes in a case involving reopening of assessment under section 147 and addition under section 68. The ... Reopening of assessment u/s 147 - addition u/s 68 -fraudulent opening of the bank account with his PAN details by M/s Ason Trading Co Ltd. - RTGS transactions were alleged to be made and was involved in the offence of money laundering. HELD THAT:- We find that despite having all the details, there is no enquiry by the AO from the Axis Bank regarding the account opening by M/s Ason Trading Co Ltd using the assessee’s PAN card. The record is also completely silent on any notice u/s 133(6) of the Act being issued to the Axis Bank seeking any information regarding the account opened by M/s Ason Trading Co Ltd. Despite having the details of the CBI case, the AO has not tried to obtain any information which may incriminate the assessee. Thus, it is evident that the AO did not conduct any independent enquiry and merely on the basis of the information available on the ITBA portal, made the impugned addition in the hands of the assessee. Accordingly, we deem it appropriate to restore the matter to the file of the jurisdictional AO for de novo adjudication after examination of all the details filed by the assessee. Appeal by the assessee is allowed for statistical purposes. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this appeal are:(a) Whether the reopening of the assessment under section 147 of the Income Tax Act, 1961 ('the Act') was valid and in accordance with law;(b) Whether the learned Commissioner of Income Tax (Appeals) ('CIT(A)') erred in not admitting additional evidence filed by the assessee during appellate proceedings;(c) Whether the addition of Rs. 246,47,13,410/- on account of unexplained credits in the bank account maintained in the name of M/s Ason Trading Company, opened allegedly fraudulently using the assessee's PAN card, was justified under section 68 of the Act;(d) Whether the Assessing Officer ('AO') conducted adequate inquiries with the investigating agencies and the bank to verify the genuineness of the transactions and the ownership of the bank account;(e) Whether the onus to prove the unexplained credits in the bank account was correctly placed on the assessee.2. ISSUE-WISE DETAILED ANALYSIS(a) Validity of Reopening of Assessment under Section 147Legal Framework and Precedents: Section 147 of the Act empowers the AO to reopen an assessment if there is reason to believe that income has escaped assessment. The reopening must be based on tangible material and not mere change of opinion. The reopening notice under section 148 must be issued within the prescribed time limit and must disclose sufficient reasons for reopening.Court's Interpretation and Reasoning: The Tribunal noted that the reopening was initiated based on information received from the High-Risk CRIU/VRU on the ITBA portal regarding non-genuine and unexplained transactions involving the assessee's PAN to the tune of over Rs. 246 crores. The assessee had not filed a return for the year under consideration, which also justified the issuance of notice under section 148.Application of Law to Facts: The reopening was triggered by specific information indicating possible escapement of income. The Tribunal did not find any infirmity in the reopening procedure or timing. Thus, the reopening was valid.Conclusion: The reopening under section 147 was legally valid and justified based on the information available to the AO.(b) Admission of Additional EvidenceLegal Framework: Rule 46A of the Income Tax Rules governs the admission of additional evidence before the CIT(A). The evidence must be relevant, not merely an afterthought, and the application for admission must be made in a timely manner.Court's Interpretation and Reasoning: The CIT(A) refused to admit the additional evidence filed by the assessee (including police complaints, bank complaints, and RBI complaints) on the ground that these were filed after the assessment order and appeared to be an afterthought without any formal application for admission.Key Findings: The Tribunal observed that the complaints were filed only after the assessment was completed and the reopening proceedings were underway, which raised suspicion about their bona fides. However, the Tribunal also noted that the AO had already considered the submissions made by the assessee during reassessment, which included claims of fraudulent use of PAN and ongoing investigations.Treatment of Competing Arguments: The assessee argued that the evidence was crucial to establish the fraudulent nature of the bank account opening and to exonerate him. The Revenue contended that the evidence was belated and did not warrant admission.Conclusion: While the CIT(A) was justified in not admitting the additional evidence due to procedural lapses and timing, the Tribunal did not conclusively uphold this refusal but rather restored the matter for fresh adjudication, implicitly allowing the assessee an opportunity to produce and rely on such evidence before the AO.(c) Addition of Rs. 246,47,13,410/- under Section 68 on Account of Transactions in Bank Account of M/s Ason Trading CompanyLegal Framework: Section 68 deals with unexplained cash credits. If the assessee fails to satisfactorily explain the nature and source of credits appearing in his books or bank accounts, such credits can be added to his income.Court's Interpretation and Reasoning: The AO held that the assessee was the proprietor of M/s Ason Trading Company and that the bank account was opened using the assessee's PAN. The AO rejected the claim of forgery and misuse of PAN due to lack of formal complaints or documentary evidence. The CIT(A) upheld this addition on the basis that no concrete proof was furnished by the assessee to establish the fraudulent nature of account opening, and noted the delay in filing complaints as an afterthought.Key Evidence and Findings: The assessee claimed misuse of PAN and fraudulent account opening, supported by reference to a CBI investigation and a judgment under the Prevention of Money Laundering Act involving M/s Ason Trading Company as a shell company. However, no formal FIR or complaint was filed before the assessment, and no independent inquiry was conducted by the AO with the bank or investigating agencies.Application of Law to Facts: The unexplained credits were prima facie attributable to the assessee due to the PAN linkage. However, the assessee's consistent claim of forgery and misuse, supported by external investigation references, raised a reasonable doubt. The AO's failure to independently verify the genuineness of the account and transactions, or seek information from the bank under section 133(6), was a significant procedural lapse.Treatment of Competing Arguments: The Revenue emphasized the absence of documentary proof and formal complaints as fatal to the assessee's claim. The assessee contended that the PAN was misused without his knowledge, and the bank account was fraudulently opened, supported by external investigations and complaints filed post-assessment.Conclusion: The Tribunal found that the AO's addition was based solely on information from the ITBA portal without independent verification. Given the procedural deficiencies and the assessee's plausible claim of forgery, the addition could not be sustained without further inquiry.(d) Adequacy of Inquiry by AO with Investigating Agencies and BankLegal Framework: The AO is duty-bound to conduct thorough inquiries, especially in cases involving allegations of fraud or misuse of identity, including issuing notices under section 133(6) to banks or other entities to verify facts.Court's Interpretation and Reasoning: The Tribunal observed that the AO did not issue any notice to Axis Bank under section 133(6) to verify the details of the bank account, nor did he seek information from the CBI or other investigating agencies despite knowledge of ongoing investigations.Application of Law to Facts: The absence of independent verification and reliance solely on the ITBA portal information and the assessee's failure to file complaints before the assessment rendered the AO's inquiry inadequate.Conclusion: The AO's failure to conduct independent and adequate inquiries was a material irregularity, warranting restoration of the matter for fresh adjudication.(e) Onus to Prove Unexplained CreditsLegal Framework: Under section 68, the initial onus lies on the AO to establish the existence of unexplained credits. Once established, the onus shifts to the assessee to satisfactorily explain the nature and source of such credits.Court's Interpretation and Reasoning: The CIT(A) held that the assessee failed to discharge the onus to explain the credits satisfactorily. However, the Tribunal noted that the assessee consistently claimed misuse of PAN and fraudulent account opening, supported by external investigations, which raised a credible explanation.Application of Law to Facts: Given the procedural lapses by the AO and the absence of independent verification, the Tribunal found that the onus was not properly discharged by the AO before making the addition, and the assessee's explanation required further verification.Conclusion: The onus was not correctly applied, and the matter requires fresh consideration after proper inquiry.3. SIGNIFICANT HOLDINGS'It is evident that the AO did not conduct any independent enquiry and merely on the basis of the information available on the ITBA portal, made the impugned addition in the hands of the assessee.''Despite having all the details, there is no enquiry by the AO from the Axis Bank regarding the account opening by M/s Ason Trading Ltd using the assessee's PAN card. The record is also silent on any notice under section 133(6) being issued to the Axis Bank.''The complaints before Bank, Police & RBI appear just an afterthought to make a plea in the Income Tax Appellate proceedings and there is no application for admitting the additional evidences. Therefore, these new evidences are not admitted under rule 46A of I.T. Rules.''Since the matter is restored to the file of the AO for consideration afresh, all the submissions/pleas of the assessee are kept open.'Core principles established include that reopening of assessment must be based on tangible material; the AO must conduct independent and adequate inquiries before making additions under section 68; belated complaints and evidence may be treated as afterthoughts and not admitted without proper application; and the onus of proof must be fairly applied with opportunity for the assessee to substantiate claims.Final determinations:- The reopening of the assessment under section 147 was valid.- The CIT(A) was justified in not admitting additional evidence due to procedural defaults, but the Tribunal allowed the assessee to produce evidence afresh before the AO.- The addition of Rs. 246,47,13,410/- was not sustainable on the record and without independent verification.- The matter is remanded to the AO for de novo adjudication with directions to conduct thorough inquiries with the bank and investigating agencies, and to provide reasonable opportunity of hearing to the assessee.