This article explores ITA No. 1891/DEL/2020, involving GM Overseas, New Delhi, and the Assistant Commissioner of Income Tax (ACIT), Circle-48(1), New Delhi. The case concerns the Assessment Year (AY) 2010-11, was filed on November 20, 2020, and the final order was pronounced on March 21, 2022. The core issue revolves around the validity of the reassessment proceedings and the addition of unexplained cash credit under Section 68 of the Income Tax Act.
GM Overseas is a partnership firm engaged in the business of trading rice and other food grains and sorting rice. The firm filed its return of income on September 27, 2010, declaring an income of Rs. 25,85,610/-. The assessment was completed under Section 143(3) on February 1, 2013, determining the total income at Rs. 27,10,350/-. Subsequently, based on information received from the Investigation Wing of the Department, the Assessing Officer (AO) recorded reasons to reopen the assessment under Section 147, suspecting that GM Overseas had received an accommodation entry of Rs. 4,00,00,112/- from M/s Index Securities and Research Pvt. Ltd. during FY 2009-10.
The AO recorded the following reasons for reopening the assessment:
As per the information received from ADIT(Inv), Unit-5(3), New Delhi, vide letter No.ADIT(Inv.)/Unit-5(3)/Asharam/2016-17/278 dated 27.03.2017, M/s GM Overseas has received credit of Rs. 4,00,00,112/- from M/s Index Securities & Research Pvt. Ltd. during FY 2009-10 relevant to AY 2010-11.
On the basis of the information, a survey action was conducted on the office premises of Shri Santlal Agarwal on 09.03.2016. It was gathered that M/s Index Securities & Research Pvt. Ltd. provided accommodation entries to various entities. The Directors of M/s Index Securities & Research Pvt. Ltd., Sh. Vinod Kumar Taneja and Smt. Chanchal Taneja, admitted that it was a paper company and was involved in providing loans to various companies.
From the statement of the Directors, it was clear that M/s Index Securities & Research Pvt. Ltd. was involved in providing accommodation entries to various beneficiaries, including M/s GM Overseas, which received credits amounting to Rs. 4,00,00,112/- during FY 2009-10. Therefore, I have reasons to believe that the income of the assessee to the extent of Rs. 4,00,00,112/- has escaped assessment for AY 2010-11.
The AO issued statutory notices under Section 143(2), and the assessee appeared and filed requisite details. During the reassessment proceedings, the AO asked the assessee to substantiate the amount received from M/s Index Securities and Research Pvt. Ltd. Rejecting the various explanations given by the assessee, the AO made an addition of Rs. 4 crore to the total income of the assessee, invoking the provisions of Section 68 read with Section 115BBE.
Before the Commissioner of Income Tax (Appeals) [CIT(A)], the assessee challenged the validity of the reassessment proceedings and the addition on merit. However, the CIT(A) upheld both the reassessment proceedings and the addition.
Aggrieved by the order of the CIT(A), the assessee appealed to the Income Tax Appellate Tribunal (ITAT), raising several grounds, including the improper initiation of reassessment proceedings and the addition of Rs. 4 crore as unexplained cash credit.
The ITAT, comprising Shri R.K. Panda, Accountant Member, and Shri N.K. Choudhry, Judicial Member, reviewed the case. The tribunal noted that the reassessment was initiated after four years from the end of the relevant assessment year and that the AO had not mentioned any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.
The ITAT relied on several judicial precedents, including the decision of the Hon’ble Delhi High Court in the case of Haryana Acrylic Manufacturing Co., which held that in the absence of any allegation of failure on the part of the assessee to disclose fully and truly all material facts, the reassessment proceedings initiated after four years are not valid.
The ITAT concluded that the reassessment proceedings initiated by the AO were not in accordance with the law and quashed the same. The tribunal did not adjudicate the other grounds challenging the validity of reassessment proceedings and the addition on merit, as the assessee succeeded on the legal ground.
The ITAT’s decision underscores the importance of adhering to the statutory requirements for reopening assessments, especially the need for a clear allegation of failure to disclose material facts when reassessment is initiated after four years from the end of the relevant assessment year.
The final order, pronounced on March 21, 2022, reads:
In the result, the appeal filed by the assessee is allowed.
Signed by:
(N.K. CHOUDHRY) Judicial Member
(R.K. PANDA) Accountant Member
Dated: 21st March, 2022
This judgment highlights the necessity for detailed enquiry and verification in the assessment process, ensuring that all claims are scrutinized and justified appropriately.
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