Ajay Singh Vs ACIT (ITAT Delhi)
Income Tax Appellate Tribunal (ITAT), Delhi Bench, has nullified an addition of Rs. 25 lakh made under Section 68 of the Income Tax Act, 1961, against assessee Ajay Singh for Assessment Year 2012-13. The tribunal’s decision, pronounced on February 7, 2025, primarily hinged on the Assessing Officer’s (AO) failure to conduct independent inquiries before initiating reassessment proceedings, deeming it “borrowed satisfaction.”
The appeal was filed by Ajay Singh against the order of the CIT(Appeals)-NFAC, Delhi, which had sustained the AO’s addition. The core of the dispute revolved around two credit entries in the assessee’s bank account: Rs. 10 lakh from Krishan Bans Bahadur and Rs. 15 lakh from PAN India Motor (P) Ltd.
Grounds of Appeal and Assessee’s Arguments: The assessee raised several grounds, challenging the legality of the reassessment and the merits of the addition. Key arguments included:
- Invalid Reopening: The assessee contended that the reassessment was bad in law as it was initiated solely based on a report from the Investigation Wing without any independent inquiry or formation of belief by the AO regarding escaped income.
- Return Filing Irregularity: A technical argument was also made regarding the treatment of a Section 139(1) return as compliance with a Section 148 notice, arguing for the necessity of a fresh return.
- Source of Credits: On the merits, the assessee provided details for both credit entries. For the Rs. 10 lakh from Krishan Bans Bahadur (now deceased), bank statements showing transactions through banking channels were submitted. For the Rs. 15 lakh from PAN India Motor (P) Ltd., confirmation, PAN details, and bank statements of the creditor were provided, asserting it was a refund of earlier loans. The assessee highlighted previous substantial loans extended to PAN India Motor (P) Ltd. in earlier assessment years.
- Discharge of Obligation: The assessee argued that by providing identity, bank account details, and PAN of the lenders, he had discharged his obligation under Section 68 of the Act, and any further inquiry regarding the source of funds should be directed at the lenders.
- Sufficiency of Income: The assessee pointed out that while the AO focused on income from other sources (Rs. 6,10,072/-), the filed return for AY 2012-13 also reported exempt income of Rs. 15,26,571/-. Furthermore, for AY 2011-12, substantial exempt income of over Rs. 16 crore (capital gains and dividend) was declared, indicating sufficient overall financial capacity to explain the credit entries.
AO’s Rationale and Tribunal’s Scrutiny: The AO had reopened the assessment based on an Investigation Wing report. The report indicated that summons were issued to the assessee, who did not appear, and to one Shri Manpreet Singh Chadha, who provided some information. The AO concluded that income to the extent of Rs. 25 lakh had escaped assessment, noting that the assessee’s return for AY 2012-13 showed income from other sources at only Rs. 6,10,072/-.
