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Facts
The Revenue appealed against the CIT(A)'s order deleting an addition of Rs. 8,44,23,000/- made on account of unexplained credits. The assessee filed a cross-objection challenging the CIT(A)'s failure to adjudicate the validity of reassessment proceedings initiated under Section 147.
Held
The Tribunal held that the reassessment proceedings were initiated on factually incorrect information regarding the number of bank accounts and the quantum of credits. The CIT(A) had found that the credits were explained as capital contributions, loans, and advances, and were recorded in the books of account, thus not warranting addition under Section 69A. Consequently, the Revenue's appeal was dismissed and the assessee's cross-objection was allowed.
Key Issues
Whether reassessment proceedings initiated on incorrect information are valid; whether additions for unexplained credits are justified when the credits are explained and recorded in books.
Sections Cited
69A, 115BBE, 147, 148, 250, 142(1), 143(2), 144B
AI-generated summary — verify with the full judgment below
Order PER KRINWANT SAHAY, A.M: The present appeal by the Revenue and Cross Objection by the Assessee has been filed against the order passed by the Ld. CIT(A)/NFAC, Delhi dated 06.12.2024 pertaining to Assessment Year 2014-15. 2. Revenue has raised the following grounds in its appeal.
Whether on the facts and in the circumstances of the case, the CIT(A) was right in aw in allowing the appeal of the assessee by directing the AO to delete the addition made for Rs 8,44,25,000/- on account of unexplained credits.
Whether on the facts and in the circumstances of the case, the CIT(A) was right in law in deleting the addition made for Rs 8,44,23,000/- on account of unexplained credits by ignoring the fact that assessee had not furnished to the AO requisite details with respect to credit entries.
Whether on the facts and in the circumstances of the case, the CIT(A) was right in law in allowing the appeal of the assessee even when the assessee was specifically asked to provide the details with respect to credit entries received from various parties along with the relevant documentary evidence.
4. The Ld. CIT Appeal has erred in deleting the entire addition of Rs. 8,44,23,000/- made by A.O. u/s 69A of the Income-tax Act, 1961.
5. Whether on the facts and in the circumstances of the case, the CIT(A) was right in law in deleting the addition of Rs. 14,00,000/- on account of unexplained cash deposits without making any discussion regarding the same in their order. 6. The Appellant craves leave to add, demand or delete any of the grounds of appeal
during the appellate proceedings.
3. Assessee has raised the sole ground in its Cross Objection which read as under:-
That order passed u/s 250 of the Income-Tax Act, 1961 is against law and facts on the file in as much as the Learned Commissioner of Income Tax (Appeals) was not justified in not adjudicating the ground relating to initiation of proceedings u/s 147 of the Act
The assessee, a Partnership Firm set up to carry on the business of real estate activities such as resale of properties, acting as builder and colonizers had not carried out any business during the year under appeal. For the Assessment Year under appeal the Assessee had not originally filed its return of income. On the basis of information available with the department, it was noticed that the assessee had substantial non-cash credits and cash deposits in its bank account during the financial year 2013-14, which remained unexplained.
4.1 In particular, the reassessment proceedings were initiated on the basis of information received from the Insight Portal alleging that the assessee had maintained the following three bank accounts with ICICI Bank and had non- cash credits aggregating to Rs 19,20,81,169/- during the relevant previous year details of which read as under:-
Name of assessee Name of F.Y. Bank account Amount of bank number transaction M/s Gulmofiar Associate ICICI Bank Urban 2013-14 079005500022 Rs. 7,16,68,169/- Estate, Patiala M/s Gulmohar Associate ICICI Bank Urban 2013-14 079005500178 Rs. 7,36,73,000/- Estate, Patiala M/s Gulmohar Associate ICICI Bank Urban 2013-14 079005500110 Rs. 2,67,40,000/- Estate, Patiala Total Rs. 19,20,81,169/- 4.2 Accordingly, the case was reopened under section 147 of the Income- tax Act, 1961 after obtaining due approval from the competent authority and notice under section 148 dated 31.03.2021 was issued.
4.3 In response to the notice under section 148, the assessee filed it return of income on 30.12.2021 declaring total income at Nil. During the reassessment proceedings, statutory notices under sections 142(1) and 143(2) of the Act were issued electronically, calling upon the assessee to furnish details such as bank statements, sources of cash and non-cash credits, nature of transactions, and supporting documentary evidence. The assessee submitted bank statements, computation of income and balance sheet, and contended that it had not carried out any sale of property during the year and that the deposits in the bank account were out of capital contribution and advances related to real estate transactions.
4.4 On examination of the bank statement of the assessee's current account No. 079005500178 maintained with ICICI Bank, Urban Estate, Patiala, the Assessing Officer observed that during the year the assessee had made cash deposits of Rs. 14,00,000/- and non-cash deposits aggregating to Rs. 8,30,23,000/-, resulting in total deposits of Rs. 8,44,23,000/-. The Assessing Officer further noted that the assessee failed to satisfactorily explain the nature and source of these credits with cogent documentary evidence. It was also observed that the assessee's bank account was used for routing funds received from one entity to another, indicating that the assessee was acting as a conduit for transfer of funds.
4.5 During the assessment proceedings, the assessee furnished complete details including the partnership deed, PAN, books of account, cash book, bank book, ledger accounts, confirmations from parties, income-tax returns and bank statements of the persons from whom the amounts were received.
4.6 It was also submitted before the A.O that the assessee was maintaining only one current account with ICICI Bank bearing account No. 079005500178 and the information relating to the two other bank accounts was not correct and in that view of the matter, the allegation regarding maintenance of three bank accounts is factually incorrect. Further, the actual non-cash credits in the said bank account during the relevant previous year amount to Rs. 8,30,23,000/- as against Rs. 19,20,81,169/- mentioned in the reasons recorded. It was submitted that the reopening was based on incorrect facts and without proper application of mind.
4.7 The Assessing Officer held that the assessee did not substantiate its claim that the amounts represented genuine advances for purchase of properties, as no agreements, property details, or corroborative evidence were produced. Further, the assessee had not recorded these transactions in its books of account nor reported them in the return of income. The objections raised by the assessee against the reopening of assessment were also examined and rejected by the Assessing Officer as being devoid of merit.
4.8 In view of the above facts, the Assessing Officer concluded that the assessee had failed to explain the nature and source of the cash and non- cash credits appearing in its bank account. Accordingly, the total deposits amounting to Rs. 8,44,23,000/- were treated as unexplained money under section 69A r.w.s 115BBE of the Income-tax Act, 1961 and added to the total income of the assessee. The income so assessed was subjected to 115BBE.
Against the order of the AO the assessee went in appeal before the Ld. CIT(A).
The Ld. CIT(A) has adjudicated on the various grounds of appeal in the light of the assessment order passed under section 147 read with section 144B of the Income-tax Act, 1961, and has also examined the material available on record.
6.1 During the course of the first appellate proceedings the Ld. CIT(A) noted that the credits appearing in the bank account were explained as capital contributions from partners, unsecured loans and advances received from related concerns and family members. The identity of the persons, their relationship with the partners and the documentary evidences supporting the transactions are available on record. The Assessing Officer has not brought any material on record to controvert these explanations or to establish that the amounts represent unexplained money of the assessee.
6.2 The Ld CIT(A) has also alluded to the provisions of section 69A of the Income-tax Act, 1961 which read as under:-
Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him, for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.
6.3 On the basis of the above the Ld. CIT(A) observed that in the present case, the amounts credited in the bank account are duly recorded in the books of account and the assessee has satisfactorily explained the nature and source of such credits with supporting evidences. Accordingly, the mandatory conditions for invoking section 69A are not fulfilled and that the assessee comes clean as far as invoking the rigors of section 69A are concerned.
6.4 In view of the above facts and legal position, the Ld. CIT(A) held that the addition of Rs 8,44,23,000/- made by the Assessing Officer under section 69A of the Income-tax Act, 1961 is not sustainable either on facts or in law. The Assessing Officer was directed to delete the said addition.
6.5 Since the matter had been decided on merits, the Ld. CIT(A) did not take up the issue challenging the initiation of proceedings u/s 147 for adjudication.
Against the order the Ld. CIT(A) the Revenue preferred in appeal before the Tribunal.
The Appellant has filed cross-objection challenging the order of the CIT(A) on the issue of non-adjudication of challenge to initiation of proceedings u/s 147 of the Act.
The Ld. DR supported the assessment order and contended that the Assessing Officer rightly made an addition of Rs. 8,44,23,000/- under section 69A of the Income-tax Act, 1961 on account of unexplained cash and non- cash credits appearing in the assessee's bank account. It was submitted by him that despite issuance of statutory notices, the assessee failed to furnish satisfactory documentary evidence such as agreements or property details to substantiate its claim that the credits represented genuine business advances. The Ld. DR also argued that the bank account was used for routing funds from one entity to another, indicating accommodation entries without real business activity. It was further contended that the Ld. CIT(A) erred in deleting the addition by relying on explanations furnished at the appellate stage. The Ld. DR also submitted that the deletion of Rs. 14,00,000/- on account of unexplained cash deposits was without any discussion and therefore unsustainable.
9.1 During proceeding before us the Ld. DR argued that the Ld. CIT(A) had referred the matter back to the file of AO for seeking Remand Report but the AO had not sent the Remand Report in time, therefore, the Ld. CIT(A) passed the appellate order without the Remand Report on the ground that it was an priority appeal case. In rebuttal to these arguments of the Ld. DR, the Ld. Counsel argued that whatever documents were sent by the Ld. CIT(A) to the AO for giving his comments in Remand Report were properly checked by the Ld. CIT(A) himself as it is evident from the Ld. CIT(A)’s order itself which is as under:
5.14 From the perspective of the present appeal; addition may have been warranted had the credited amount in the appellant’s bank account was not recorded in the books of the appellant fir and the appellant had not offered any explanation about the nature and source of the credited amounts. The AO could have drawn adverse inference had there not been any satisfactory explanation about such credits. On other hand, the facts on the record demonstrate that the appellant had presented extracts of its books showing the transactions, explaining the source persons of such amounts by way of their ITRs filed with the Department, confirmations as well as extracts of their bank statements. In such circumstances, the appellant firm comes clean as far as inviting the rigors of section 69A is concerned. 5.15 In view of the foregoing discussion, I am inclined to delete the addition of Rs. 8,44,23,000/- made u/s 69A of the Act and allow the ground no. 3 of the appeal.
The Ld. AR supported the order of the Ld. CIT(A) and submitted that the reassessment proceedings were bad in law in as much as the reasons recorded were based on incorrect facts regarding the number of bank accounts and the quantum of credits, showing non-application of mind. It was argued that the assessee had furnished complete books of account and documentary evidences explaining the credits as capital contributions, unsecured loans and advances from related parties, thereby establishing identity, genuineness and source. The Ld AR submitted that section 69A was wrongly invoked since the amounts were duly recorded in the books and satisfactorily explained, and no adverse material was brought on record by the Assessing Officer. It was further contended that mere routing of funds through the bank account does not justify an addition in the absence of contrary evidence. The Ld. AR also submitted that the Ld. CIT(A) rightly deleted the addition by passing a reasoned order and prayed for dismissal of the Revenue's appeal.
We note that during the assessment as well as appellate proceedings, the assessee had furnished complete details such as books of account, cash book, bank book, ledger accounts, partnership deed, confirmations, PAN, income-tax, returns and bank statements of the persons from whom the amounts were received. The Ld. CIT(A) has recorded a clear finding that the credits represented capital contributions from partners, unsecured loans and advances from related concerned and family members, and that the identity of the creditors, their relationship with the partners, as well as the source of funds stood duly explained. The Assessing Officer has neither rejected the books of account nor brought any adverse material on record to disbelieve these explanations.
As regards the applicability of section 69A of the Income-tax Act, 1961, we find that the Ld. CIT(A) has held that an addition under the said provision can be made only when the assessee is found to be the owner of money not recorded in the books of account and fails to offer a satisfactory explanation regarding its nature and source. In the present case, it is an undisputed fact that the amounts credited in the bank account were duly recorded in the books of account and were supported by documentary evidences. Therefore, the essential conditions for invoking section 69A were not satisfied. The mere allegation that the bank account was used for routing of funds, without any corroborative evidence to show that the monies belonged to the assessee or represented its undisclosed income, cannot justify the impugned addition.
With regard to the Revenue's contention that the deletion of Rs. 14,00,000/- on account of cash deposits was without discussion, we find that the Ld. CIT(A), having held that the entire addition under section 69A was unsustainable on facts and in law, has implicitly dealt with the cash deposits as part of the same issue. No separate material has been brought before us by the Revenue to warrant a different conclusion on this aspect.
In view of the foregoing discussion, we are of the considered opinion that the Ld. CIT(A) has passed a well-reasoned and speaking order after due appreciation of facts and law, and no perversity or legal infirmity has been pointed out therein. We, therefore, find no merit in the grounds raised by the Revenue.
Accordingly, the appeal filed by the Revenue is dismissed.
The assessee has also filed a cross objection against initiation of proceedings u/s 148. The assessee vehemently argued that very initiation of proceedings u/s 148 is bad in law as after going through the reasons recorded, it can be seen that the Ld. Assessing Officer has mentioned three bank accounts pertaining to the assessee and without any verification, has worked out the alleged escapement of income at Rs. 19,20,81,169/-.
The Ld. AR has submitted that the very initiation of reassessment proceedings is bad in law since the basic information on the basis of which proceedings have been initiated is incorrect. As per the information available on the Insight Portal the Appellant Firm was presumed to have three bank accounts whereas the Appellant Firm was operating only one Bank account and the remaining Bank accounts were never found to have been operated by it and no details of transactions carried out therein have been provided by the Department. Therefore, as per Ld. AR, the very initiation of reassessment proceedings is without any basis since there is no credible/reliable information of income having escaped assessment.
We have carefully considered the rival submissions, perused the orders of the authorities below and examined the material available on record. On a perusal of the assessment records, we find that the reassessment proceedings were initiated on the basis of information allegedly received from the Insight Portal, wherein it was stated that the assessee was maintaining three bank accounts with ICICI Bank and had non-cash credits aggregating to Rs 19,20,81,169/- during the relevant previous year. However, the Ld. CIT(A), on verification of the bank statements and documents furnished by the assessee, has recorded a categorical finding of fact that the assessee was maintaining only one current account with ICICI Bank bearing account no. 079005500178 and that the actual non-cash credits therein amounted to Rs. 8,30,23,000/-. Thus, the very foundation of the reasons recorded for reopening was found to be factually incorrect. We had no infirmity in this factual finding of the Ld. CIT(A), which has not been controverted by the Revenue by bringing any cogent material on record.
The Ld. DR opposed the C.O by stating that the reassessment was validly initiated after due approval.
We have considered the rival submissions and perused the record. The sole grievance of the assessee in its Cross Objection is that the Ld. CIT(A) failed to adjudicate the ground challenging the validity of reopening under section 147/148 of the Act.
We have also gone through the record and found that the reassessment proceedings were initiated on the basis of information that the Appellant Firm was operating three bank accounts with ICICI Bank which information was ultimately not going to be correct since the details and transactions in only one bank account were ultimately disclosed. The information in relation to the other two Bank Accounts were not found to be correct. In this scenario the sole basis on which the reassessment proceedings have been initiated falls flat since the very basis for the same is incorrect. It is basic and trite law that the information on the basis of which reassessments proceedings have been initiated should be specific and correct in relation to the impugned assessee with no scope for any doubt on the issue. There are plethora of judicial pronouncements wherein it has been categorically held that in case reasons recorded for initiating proceedings u/s 147/148 are found incorrect, the initiation of proceeding on incorrect reasons is bad in law and hence not sustainable. In view thereof we have no hesitation in holding that the resort to reassessment proceedings and the issue of notice u/s 148 is bad in law.
To conclude the grounds of appeal filed by the Revenue are dismissed and the cross-objection filed by the Assessee is allowed.