Assessee wins as Revenue fails to disprove documented fund transfers under Section 69A during demonetization

The ITAT Ahmedabad dismissed the Department's appeal regarding unexplained income under Section 69A during demonetization period in November 2016. The assessee provided documentary evidence for high-value fund transfers, shifting burden to Revenue to disprove claims. The AO failed to conduct independent inquiry or issue summons under Section 131 or notices under Section 133(6). Since transactions were properly recorded, documented, and explained without any rebuttal from Revenue, CIT(A) was justified in deleting the addition. The Tribunal upheld that refund of earlier advances cannot be added under Section 68.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

(a) Whether the reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961, were valid, particularly with respect to the issuance of notice beyond the three-year period without obtaining prior sanction from the appropriate authority as mandated by Section 151 of the Act.

(b) Whether the notice under Section 148 was validly issued in accordance with the faceless assessment scheme, requiring issuance through the National Faceless Assessment Centre (NFAC) rather than by the jurisdictional Assessing Officer (AO).

(c) Whether the addition of Rs. 6.80 crore to the assessee's income under Section 69A of the Act was justified, considering the assessee's explanation and documentary evidence regarding the nature and source of the transactions credited and debited in the bank account during the demonetization period.

(d) Whether the assessee satisfactorily explained the transactions with M/s. Ashtavinayak Realty Pvt. Ltd., M/s. Green City Farms Pvt. Ltd., and M/s. Agarwal Enterprise, including the genuineness of agreements, advances, repayments, and the accounting treatment thereof.

2. ISSUE-WISE DETAILED ANALYSIS

Validity of Reassessment Proceedings and Notice Issuance

The reassessment was initiated under Section 148 based on information about large-value transactions during November 2016. The assessee challenged the reassessment on the ground that the AO had not obtained the requisite prior approval from the Principal Chief Commissioner or Director General as required under Section 151 when issuing a notice beyond three years under Section 149(1)(b). Instead, approval was obtained from the Principal Commissioner of Income Tax (Pr. CIT-3), Ahmedabad, which the assessee contended was not the competent authority.

Additionally, the assessee argued that under the faceless assessment scheme, notices under Section 148 must be issued through automated allocation by the NFAC, not by the jurisdictional AO, rendering the notice dated 31.08.2022 invalid and the reassessment void ab initio.

The Tribunal noted these contentions but did not find any specific infirmity in the reassessment notice issuance process that warranted interference. The factual record did not disclose any procedural irregularity sufficient to vitiate the reassessment. The Tribunal implicitly accepted the reassessment's validity, focusing primarily on the substantive issue of addition under Section 69A.

Addition under Section 69A of the Income Tax Act

Section 69A applies to unexplained investments, money, or other assets not recorded in the books of account. The AO invoked Section 69A to add Rs. 6.80 crore, representing credits and debits in the assessee's bank account during the demonetization period. The AO's view was that the assessee failed to satisfactorily explain the source and nature of these transactions.

The assessee submitted comprehensive documentary evidence to rebut the presumption of unexplained income. This included:

• Registered agreements to sell land parcels (Banakhat) with M/s. Ashtavinayak Realty Pvt. Ltd. and M/s. Green City Farms Pvt. Ltd.
• Ledger accounts reflecting the transactions with these parties.
• Bank statements corroborating the flow of funds.
• Confirmations from the concerned parties.
• Evidence of repayment of advances from Agarwal Enterprise, including ledger entries, bank statements, and income tax returns of the lender.

The assessee contended that the Rs. 4.90 crore received from Ashtavinayak Realty was an advance against land sale, with the land still shown as a fixed asset as on 31.03.2017, and that Rs. 1.90 crore from Agarwal Enterprise was a repayment of an earlier advance, not fresh income.

The Tribunal observed that the AO did not carry out any independent inquiry such as issuing summons under Section 131 or notices under Section 133(6) to verify the genuineness of the transactions or the parties involved. The AO also failed to adequately consider the detailed documentary evidence submitted by the assessee. The Tribunal emphasized settled legal principles that once the assessee discharges the initial burden of proof by furnishing credible evidence regarding the identity and creditworthiness of the parties and genuineness of transactions, the onus shifts to the Revenue to disprove the same.

In the absence of any contradictory evidence or investigation by the AO or the Departmental Representative, the Tribunal held that the addition under Section 69A was not sustainable.

Explanation of Transactions with M/s. Ashtavinayak Realty Pvt. Ltd. and M/s. Green City Farms Pvt. Ltd.

The assessee produced registered agreements and ledger accounts showing advances received against land sale transactions. The agreement with Green City Farms was cancelled, and the amount of Rs. 4.90 crore was refunded. The land related to Ashtavinayak Realty remained unsold and was reflected as a fixed asset in the balance sheet. The Tribunal found that these facts were adequately substantiated and that no capital gain arose as no sale was completed during the year.

Explanation of Transaction with M/s. Agarwal Enterprise

The transaction of Rs. 1.90 crore was shown as repayment of an advance given earlier by the assessee. This was supported by ledger entries, bank statements, confirmation from Agarwal Enterprise, and the income tax return of its proprietor. The Tribunal noted that refund of money from earlier advances is not taxable as income and cannot be added under Section 68 or 69A.

3. SIGNIFICANT HOLDINGS

The Tribunal held that the addition of Rs. 6.80 crore under Section 69A was not justified where the assessee had satisfactorily explained the source and nature of the transactions with adequate documentary evidence. The Tribunal stated:

"Since the transactions were duly recorded in the books, properly explained with documentation, and lacked any rebuttal or investigation by the AO or the Ld. DR before us during the course of arguments, Ld. CIT(A) was justified in deleting the addition of Rs.6.80 crore."

It reaffirmed the settled principle that once the assessee discharges the initial burden of proof by providing credible evidence, the onus shifts to the Revenue to disprove the genuineness of the transactions.

The Tribunal also implicitly upheld the validity of the reassessment proceedings and notice issuance, as no procedural infirmity was found to vitiate the process.

Accordingly, the appeal filed by the Department was dismissed.

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