Belief of escapement of income should be based on some tangible information

Belief of the Assessing Officer regarding escapement of income should be based on some tangible information

In a recent judgment, the ITAT has held that belief of the Assessing Officer regarding escapement of income should be based on some tangible information and it should not be mere pretence of the Assessing Officer.

ABCAUS Case Law Citation:
ABCAUS 3894 (2024) (03) ITAT

In the instant case, the Income Tax Department had challenged the order passed by the CIT(A) in deleting the addition made by the Assessing Officer (AO) on account of unexplained fund.

The assessee filed its return of income declaring a loss. In this case the Assessing Officer received information from DDIT Investigation Unit that the assessee had received large funds from a company. It was also informed that the nature and source of funds in the hands of the company remained unexplained.

On the basis of this information the assessing officer reopened the case u/s. 147 of the Act after taking necessary approvals from the competent authority. The Assessing Officer issued notice u/s 148 of the Act to the assessee.  In response to which the assessee filed its submissions and further also filed return of income.

However, the Assessing Officer noted that thereafter the assessee did not file any details or evidences to prove the genuineness of the transaction. The Assessing Officer thereafter treated the amount as unexplained income of the assessee and added the same into the income of the assessee.

Before the CIT(A), it was also submitted that the nature and source of the amount received was duly explained that it was on account of sale of investment. The assessee furnished all the documents relating to the transaction, whereupon, the CIT(A) called for a remand report from the Assessing Officer. The CIT(A) has noted in the impugned order that despite all the materials submitted by the assessee forwarded to the Assessing Officer, however, no comments had been received from the Assessing Officer despite giving number of opportunities. Thereafter, the CIT(A) proceeded to examine the documents himself.

The assessee relied upon the assessment order passed in the case wherein, the issue relating to the investments made by the said company was duly considered. In the aforesaid assessment order no adverse view was taken by the Assessing Officer in the case of the said company.

The CIT(A) further observed that the financial statements of the said company had been shown. He also noted that from the bank statement of the said company the transactions with the assessee were duly reflected. The CIT(A) further noticed that in spite of bank details of the assessee as well as that of said company available with the Assessing Officer, no enquiry was conducted by the Assessing Officer. He further noted that the Assessing Officer simply relied upon the information received from the Investigation Wing and published the same. The CIT(A) having examined the documents of the assessee held that no disallowance was warranted in this case.

AO’s Belief of escapement of income should based on some tangible information

The Tribunal found that the only information received by the Assessing Officer from Investigation Wing was that the assessee had received funds  from the said company through banking channel. Further, initially funds were deposited into bank account of the said company which were not commensurate to its turnover. It was found that the funds were ultimately transferred from banking channel to the assessee from the bank account of the said company.

The Tribunal opined that the aforesaid confirmation only pertains to the transfer of fund from the said company to the assessee. However, this information was not enough to form the belief that the income of the assessee for the year had escaped assessment. What has been alleged in the information was that the receipt of funds from the said company from some other source was not commensurate to its turnover. However, the turnover of the said company for the relevant financial year was in crores.

The Tribunal stated that mere receipt of funds by the assessee from said company in no terms be said to be any information of escapement of income of the assessee. It has been held time and again that the belief of the Assessing Officer regarding escapement of income should be based on some tangible information and it should not be mere pretence of the Assessing Officer.

The Tribunal held that in this case, the Assessing Officer did not have valid reason for reopening of the assessment. Even otherwise, no additions had been made in the case of the said company and its source of funds had not been doubted by the Assessing Officer.

In view of this, the Tribunal held that there is no infirmity in the order of the CIT(A) and the same was upheld.

Accordingly, the appeal of Revenue was dismissed. 

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