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Facts
The assessee filed a NIL return. Subsequently, a search action on Banka Group revealed the assessee received accommodation entries (unsecured loans) amounting to ₹68,00,224/- from shell companies. The assessment was reopened under Section 147/148 of the Income Tax Act, and the AO added the unsecured loans under Section 68 and related interest under Section 37. The CIT(A) deleted the additions on merits, leading to a Revenue appeal, while the assessee filed a cross-objection challenging the validity of the reassessment proceedings.
Held
The Tribunal quashed the reopening of assessment, finding the reasons recorded by the AO to be vague, lacking specific details of transactions and persons, and based on borrowed satisfaction without independent application of mind. Consequently, the assessee's cross-objection was allowed on the legal issue, rendering the Revenue's appeal as infructuous.
Key Issues
Whether the reopening of assessment under Section 147/148 of the Income Tax Act was valid when the reasons recorded by the AO were vague and lacked specific transaction details, and whether the additions made under Section 68 and Section 37 were justified.
Sections Cited
147, 148, 68, 37, 144B, 47, 151(1), 131, 132(4), 133(6)
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Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR, AM & SHRI SONJOY SARMA, JM
These are the appeals preferred by the Revenue and CO by the assessee against the order of the Commissioner of Income-tax
The Revenue has filed the appeal against the order of ld. CIT (A) challenging the deletion of addition of ₹72,89,457/-, whereas the assessee has challenged by way of cross objection the legality of reopening of assessment by the ld. AO u/s 147 of the Act. Since, the assessee has raised legal issue in the ground no.3 qua reopening of assessment u/s 147 of the Act. Therefore, we are inclined to decide the first the legal issue raised in ground no.3 of the cross objection of the assessee. The said ground raised is as under:-
3. For that the proceedings u/s 147 initiated on the basis of vague reasons are not maintainable.
3. The facts in brief are that the assessee filed the return of income on 21.07.2017 declaring total income at ₹ nil. Thereafter, a search action in case of Banka Group of companies was conducted on 25.05.2018, in which it was found that Mukesh Banka and is associated entities were engaged in providing accommodation entries and the assessee is the beneficiary of the said accommodation entries to the tune of ₹68,00,224/-. Accordingly, the case of the assessee was reopened u/s 147 of the Act by issuing notice u/s 148 of the Act on 31st March, 2021 after obtaining the approval of the competent authority. The assessee complied with the said notice by filing the return of income on 2nd April, 2021. Thereafter the statutory notices were issued and served upon the assessee. In Para no. 3 of the assessment order, the ld. AO extracted the details of unsecured loans received by the assessee from five entities aggregating and amounting to ₹68,00,224/- along with dates, addresses of the lenders and also details interest paid to them aggregating to ₹4,89,233/-. Thereafter
In the appellate proceedings, the ld. CIT (A) allowed the appeal of the assessee on merit, however, the legal issue was not adjudicated. Hence, the Revenue’s appeal before us is against the deletion of addition while the assessee has challenged the validity of reassessment proceedings based on the vague and scanty reasons.
After hearing the rival contentions and perusing the materials available on record, we find that the case of the assessee was reopened u/s 147 of the Act by issuing notice u/s 148 of the Act on 31.03.2021, after obtaining the approval from the competent authority.From the perusal of the reasons recorded, a copy of which is attached at page no. 2 to 4 of the Paper Book, we observe that as per the information available with department, the assessee has taken accommodation entry to the tune of ₹68,00,224/- and accordingly, the AO has reasons to believe that the income of the assessee has escaped to that extent in terms of clause (b) of explanation 2 of Section 47 of the Act. For the sake of ready reference, the reasons are extracted below:-
“2. A search & seizure/survey action in the case of Banka Group was conducted on 21.05.2018. Based on the findings gathered and subsequently brought on records, it is
During the course of post search verification of seized/impounded naturals, various paper/shell companies controlled and managed by Shri Mukesh Banka were identified. All these companies were categorically accepted by Shri Mukesh Banka as paper/shell companies controlled and managed by him for the purpose of providing accommodation entries in the nature of bogus unsecured loans or in other forms. Following the lead as obtained from the statements of Shri Mukesh Banka and the materials seized. during the course of search operation the bank accounts of the paper/shell companies controlled and managed by Shri Mukesh Banka was requisitioned from respective banks and analyzed. On verification of the bank accounts of paper/shell companies of Banka Group, various beneficiaries have been identified who have obtained accommodation entry in the nature of bogusunsecured loan or in other forms, from the paper/shell companies of Bankas Group 4. Further the financial analysis of such paper/shell companies of Banka Group from which such beneficiaries have been identified, has been carried out to ascertain their financial creditworthiness. The details of such financial analysis carried out company wise are provided in CD2 This led to revelation of various noticeable points like: (1) No profit accumulation in the company(s) across various financial years (1) No actual business done by the company(s) being zero turn over reported in various financial years (it) Most of the companies have shown income under the head Other Income which shows that these companies have no actual business activities and only getting interest income under the head other income for providing bogus unsecured loan to different beneficiaries (iv) The admission of Shri Mukesh Bunk vide is statement recorded u/s. 131/132(4) of the Income-tax Act, 1961 on 30.05.2018 and 19.07.2018 that these companies are paper/shell companies, controlled and managed by Shri MukeshBarka. (v) The directors of the companies are dummydirectores of Shri Mukesh Banka as per the statement of Shri Mukesh Banka recorded us 132(4) of the Income Act 1961 on 19.07.2018. (vi) These companies were found to be non-existent as per enquiry made by Inspector of Income Tax 5. Further, during the course of analysis and examination of the bank statements of paper/shell companies of Banka Group, the entire scheme of arrangement regarding the withdrawal of cash from various bank accounts of paper/shell companies of Shri Mukesh Banka was clear bed and substantiated These findings got further authenticated from the statements of Shri Mukesh Banka regarding the pattern of cash withdrawals from his various companies: Huge withdrawal of cash from the bank accounts of Japer/shell companies of Banka Group clearly established the fact that withdrawal of unaccounted cash was one of the main features of modus operandi of Banka Group. The details of cash withdrawal which has been quantified company wise and year wise is enclosed in a CD-2. 6. Furtherongstall identified beneficiaries, the following assessees have been identified as beneficiaries whose jurisdiction lies with your charge Enclosed as ANNEXURE and provide the format given below). The details isbeing mentioned as under which requires further analysis, investigation and verification by the jurisdictional assessing In this case, as per the information available the assessee has taken accommodation entry to the tune of Rs.68,00,224/- In view of the above, I have reasons to believe that the assessee's income to the tune of Rs. 68,00,224/- has escaped assessment as per clause (b) under Explanation 2 of section 147 of the I.T. Act, 1961 for the A.Y. 2017-18. Since, 4 years have not been passed from the end of the relevant Assessment Year, necessary approval is required from the Ld. Addl./Joint C.I.T., Range-32, Kolkata before issuing notice u/s 148, as per section 151(1) notice of the I.T. Act, 1961. Accordingly, the matter is being put up before the Ld. Addl./Joint C.I.T., Range-32, Kolkata for his kind perusal and necessary approval, if deemed fit.”
On perusal of the above reasons, we observe that the ld. AO has not completely mentioned the details of transactions which the assessee has entered into during the impugned year as accommodation entries such as the particulars as to person from whom/ entity from whom the money was received and when it was received etc. The ld. AO merely reproduced the information available with the department and recorded his so-called satisfaction in one line that on the basis of information available, the assessee has taken accommodation entry to the tune of ₹68,00,224/- which in our opinion is wrong and against the provisions of the Act. In our opinion, the reasons have to be unambiguous, unscanty and clear and should contain the details of transactions entered by the assessee such as the date of transaction, amount received, the person/ entity from whom received the money. However, all the information were not mentioned in the reasons recorded. Therefore, the reasons are sanctity, unambiguous and vague and the ld. AO acted merely on the basis of borrowed satisfaction without any independent application of mind. Therefore, we are of the view that the case of the assessee was invalidly
Even on merit, we note that the loans raised by the assessee were fully repaid and assessee has filed all the information/ evidences before the ld. AO but the ld. AO has not done any independent verification and so much so that that the notice u/s 133(6) of the Act were not issued and he merely relied on the statement recorded during the course of search u/s 132(4) of the Act that Mr Banks and his associate concerns were engaged in providing accommodation entries. Even the cross examination requested by the assessee was not granted and the ld. CIT (A) after taking int account all the facts allowed the appeal of the assessee by directing the ld. AO to delete the addition. On the other hand, the ld. DR submitted that the cross- examination was never asked for by the assessee which was rebutted by the assessee by referring to page no.23 of the Paper Book, which is a written submission dated 26.03.2022, wherein cross examination was specifically requested by the assessee before the ld. AO. We note that even cross examination requested vide letter dated 23.03.2022.
In the result, the CO of the assessee is allowed and the appeal of the Revenue is dismissed as infructuous
Order pronounced in the open court on 04.03.2025.