2025 (10) TMI 1220 - AT - Income Tax

Section 147 reopening upheld on DRI intelligence and statements as tangible material; section 148 sanction valid; section 68 additions sustained.

ITAT DELHI - AT upheld reopening under s.147, finding that post-assessment intelligence from DRI and investigative statements provided prima facie ... Reopening of assessment u/s 147 - ‘reasons to believe’ - information regarding bogus sale by the Assessee received by DRI from CCE which was passed on the revenue authorities - HELD THAT:-Apart from the information collected by the Director of Investigating Wing, Kolkata, one Sh. Jagdish Prasad Purohit has stated u/s 132(4) admitting to have managed and controlled the operations of M/s Sagar Trade Link Pvt. Ltd. and providing accommodation entries to beneficiary entities. Thus, the information collected and the above statement are definitely intangible information. It is well settled law that information regarding bogus sale by the Assessee received by DRI from CCE which was passed on the revenue authorities are intangible material to record to initiate valid assessment proceedings as held in PCIT vs. Paramount Communications Pvt. Ltd. [2017 (7) TMI 621 - SC ORDER] Similar ratio has been laid down in the case of in A.G.R Investment Ltd. [2011 (1) TMI 48 - DELHI HIGH COURT] and in the case of Avirat Stat Homes Venure (P.) Ltd. [2018 (12) TMI 1397 - BOMBAY HIGH COURT] Thus, in our considered opinion, A.O. was indeed having prima facie tangible material on record on the basis of which formed reason to believe that income of appellant has escaped assessment. As the material and the reason to believe has direct nexus, we are of the opinion that A.O. has applied his mind on such material while forming reasons to believe. Specific information received from office of the DDIT, Investigation related to Sh. Jagdish Prasad Purohit and his shell Companies, that the total amount was credited into the bank account of Assessee Company, the A.O. examined the information, recorded facts which led to formation of his disbelieve that escarpment of income and after taking approval from the competent authority, issued notice u/s 148 of the Act. The requirement for reopening of assessment proceedings u/s 147 of the Act is the availability of prima facie material of evasion tax and not the conclusive establishment of escarpment of income. In the present case, no doubt the assessment u/s 143(3) of the Act had already been completed. However, at the time of assessment proceedings, no such information relating to M/s Sagar Trtadelink Private Limited was available with the A.O. The information was received by the A.O. only after completion of assessment proceedings u/s 143(3) of the Act the said Sagar Tradelink Private Limited was a paper company which was managed and controlled by entry operator namely Sh. Jagdish Prasad Purohit, who was engaged in providing accommodation entries to beneficiary entities through paper shell companies. On the receipt of the said information and based on the prima facie material available on record regarding suspicious transactions made between the Assessee and M/s Sagar Trtadelink Private Limited, after applying his mind, A.O. recorded the reasons for reopening of case. Since, there was a failure in the part of the Assessee to fully and truly disclose the facts during the original Assessment Proceedings and as the information has been received by the A.O. after the conclusion of the original assessment, we find no error or infirmity in reopening the case of the Assessee. Addition made u/s 68 - treating the sale proceedings received from M/s Sagar Trade Link Pvt. ltd. as unexplained cash credit - HELD THAT:- We find no reason to interfere with the findings and the conclusion of the Ld. CIT(A) that M/s. Sagar Trade Links Pvt. Ltd. which is a paper/shell company, which was used by the Assessee company to route its own unaccounted money in the form of sale proceeds received from M/s. Sagar Trade Links Pvt. Ltd. For the details reasons and the discussion made above, we are of the opinion that the addition made by the A.O. u/s 68 of the Act on account of unexplained cash credit which has been confirmed by the Ld. CIT(A) requires no interference. Reliance on statement of third party - As could be seen from the record, the statement of Dhuru Narayan Jha and Sh. Jagdish Kumar Purohit were provided to the Assessee by the A.O, however, the Assessee did not file any rebuttal to those statements. As could be seen from the assessment order, the statements of the above persons were not the sole basis for making the addition. The additions have been made on its merits based on the material on record, which were discussed in detail above, therefore, we find no merit in Ground No. 10 of the Assessee. Accordingly Ground of the Assessee is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether reopening of assessment under section 147 read with section 148 was valid - specifically, whether the Assessing Officer had application of mind and prima facie tangible material to form reason to believe that income had escaped assessment (including reopening beyond four years and failure to disclose fully and truly all material facts). 2. Whether objections to reopening submitted by the assessee were duly considered and whether delay in filing objections affected their validity. 3. Whether receipts of sale consideration from a buyer alleged to be a paper/shell company constitute unexplained cash credit under section 68, i.e., whether the transactions were bogus and liable to be treated as routed/own funds. 4. Whether statements of third parties (recorded under section 132(4)) relied upon by the revenue were required to be specifically confronted to the assessee, and whether failure to do so vitiated the assessment. 5. Whether opportunity to examine witnesses whose statements were relied upon by the Assessing Officer was required before adverse conclusions were drawn. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of reopening under sections 147/148 (application of mind; prima facie material; beyond four years) Legal framework: Reopening requires that the Assessing Officer (A.O.) have reason to believe, based on material, that income has escaped assessment; for reassessment beyond four years (post completed assessment under section 143(3)), action is permissible where the assessee has failed to fully and truly disclose material facts. The test is availability of prima facie material, not conclusive proof. Precedent treatment: The decision follows established precedent that information from investigative wings/third parties (even if originating from another person's search) can constitute tangible material outside records sufficient for reassessment, provided nexus exists between material and reasons to believe. Interpretation and reasoning: The Tribunal examined the reasons recorded by the A.O., noting detailed factual matrix from the Investigating Wing (interconnected bank accounts, pass-through transactions, admission/statements by persons linked to the alleged entry operator, and tracing of credits to the assessee). The A.O. applied mind to the material, obtained competent approval, and issued notice; the material had direct nexus to the belief of escapement. The Tribunal emphasized that the information about the buyer being a paper company was received after completion of original assessment, thus constituting fresh material. Ratio vs. Obiter: Ratio - reopening was valid where fresh, tangible information post-assessment established a prima facie case of escapement and there was failure to disclose fully and truly. Obiter - remarks on illustrative facts of pass-through banking and features of paper companies. Conclusions: Reopening under sections 147/148 was valid; the A.O. had applied mind and formed reasons on tangible material; reassessment beyond four years was justified by nondisclosure of relevant information by the assessee. Issue 2 - Consideration of objections to reopening (timeliness and disposal) Legal framework: When reasons for reopening are supplied, the assessee may file objections; the A.O. is expected to consider them - but timeliness and stage of filing affect weight and practical disposal. Precedent treatment: The Tribunal relied on procedural principles that late-filed objections may be treated as afterthoughts, though they should be considered on record; absence of a separate speaking order disposing objections does not nullify consideration if objections are addressed in final assessment. Interpretation and reasoning: Reasons were supplied to assessee on 12/07/2018; assessee did not file specific objections initially and filed an objection after 124 days. The A.O. issued notice under section 143(2) after 46 days, believing no objection existed. Though a separate speaking order was not passed, the A.O. considered the belated objections in the final assessment order and explained rejection of those objections on merits. Ratio vs. Obiter: Ratio - belated objections filed toward the end of proceedings can be treated as afterthoughts and may be considered and rejected in the assessment order; lack of a separate disposal order is not fatal if objections are addressed in the assessment order. Obiter - commentary on timelines and bona fides. Conclusions: Objections filed belatedly were considered by the A.O. in the assessment order and properly rejected; ground challenging non-consideration of objections lacks merit. Issue 3 - Treatment of sale proceeds from alleged paper/shell buyer as unexplained cash credit under section 68 Legal framework: Section 68 permits treating unexplained credits (including unexplained share application, share capital, or sale proceeds) as taxable if the source or nature of credits is not satisfactorily explained. Revenue may scrutinize genuineness of transactions, attendant documents, registration/possession, source of buyer's funds, and congruence between commercial conduct and claimed facts. Precedent treatment: The Tribunal applied established principles that where buyer is a shell/paper company and evidence shows routing of funds through pass-through accounts or admissions by controllers, transactions can be held non-genuine and additions under section 68 sustained. Interpretation and reasoning: Revenue evidence included investigative findings that the buyer was a paper company managed by an entry operator; bank analysis showed credits routed and immediately transferred; directors of the buyer included persons linked to seller's management; no registered conveyance/sale deeds and absence of possession despite large payments; buyer's financials showed negligible profits and bank balances; buyer failed to produce source of funds when summoned. The Tribunal accepted the explanation that appointment of seller's director and shareholding in the buyer shortly before transfers implied effective control and use of buyer to create artificial shortage/inflated sales. The Tribunal rejected the assessee's reliance on municipal mutation and agreement to sell and found it improbable that a buyer would pay huge consideration without registration/possession and without bearing stamp duty. Ratio vs. Obiter: Ratio - where comprehensive material (banking patterns, admissions by persons connected with the buyer, lack of registration/possession, inability of buyer to explain source of funds, and control/overlap in directorship/shareholding) establishes that buyer is a paper/shell company used to route seller's own funds, sale consideration can be treated as unexplained cash credit under section 68. Obiter - observations on market practices creating artificial shortage and motives for using paper companies. Conclusions: Addition under section 68 in respect of sale proceeds received from the alleged paper/shell buyer was correctly sustained; transactions were held non-genuine and amounts treated as unexplained cash credits. Issue 4 - Reliance on third-party statements (section 132(4)) and requirement of confrontation Legal framework: Statements recorded under section 132(4) may be used in assessment if they form part of the material on record; principles of natural justice require that adverse material relied upon be put to the assessee for response where appropriate. Precedent treatment: The Tribunal recognized that third-party statements are admissible as part of investigative material; confrontation is required if the statement is determinative and the assessee has not had opportunity to meet the same. Interpretation and reasoning: Statements of persons connected with the buyer were placed on record and provided to the assessee by the A.O.; the assessee did not file rebuttal. The Tribunal found that these statements were not the sole basis for addition; they were corroborative of broader material (bank-trace, lack of registration/possession, buyer's financials, control linkages). Given availability of the statements to the assessee and absence of rebuttal, non-confrontation did not vitiate assessment. Ratio vs. Obiter: Ratio - reliance on third-party statements is permissible where statements are made available to the assessee and form part of a matrix of corroborative material; absence of separate confrontation where the assessee had access and opportunity to rebut, and did not do so, is not fatal. Obiter - comments on the interplay of corroborative evidence and centrality of the statements. Conclusions: No prejudice established from non-confrontation; reliance on third-party statements as corroborative material was legitimate and did not invalidate the additions. Issue 5 - Opportunity to examine witnesses whose statements were relied upon Legal framework: Principles of natural justice require that when adverse findings are based on witness statements, the assessee should be given opportunity to examine those witnesses or cross-examine where feasible and material to the outcome. Precedent treatment: The Tribunal applied standard approach that opportunity must be meaningful and relevant to the issues; where statements are part of an investigation and are made available to the assessee and the assessee fails to seek or adduce contrary evidence, the lack of examination may not render proceedings invalid. Interpretation and reasoning: Statements relied upon were provided to the assessee and the assessee did not furnish rebuttal or seek to examine the witnesses in the assessment proceedings. The Tribunal observed that the additions did not rest solely on witness statements but on a composite of investigative material, company financials, bank records, non-registration, and non-production of source of funds by the buyer. Thus, absence of an opportunity to examine did not cause prejudice sufficient to vitiate the assessment. Ratio vs. Obiter: Ratio - failure to afford opportunity to examine witnesses whose statements were available to the assessee and against whom the assessee did not seek cross-examination or rebuttal, and where the impugned conclusion rests on cumulative corroborative material, does not invalidate the assessment. Obiter - procedural ideal of granting opportunity where practicable. Conclusions: Ground alleging denial of opportunity to examine witnesses lacks merit; no interference warranted where statements were on record and assessee did not respond or produce contradictory evidence.