ITAT Quashes Reassessment Beyond Four Years and Deletes Ad-hoc Addition for Alleged Bogus Cash Sales

The assessee, engaged in the business of running restaurants and bars under the brand “Escobar,” filed its return of income for A.Y. 2013-14 declaring Rs. 50,60,435, which was assessed under Section 143(3), accepting the returned income. Following a search operation in the case of Hindustan Platinum Pvt. Ltd. and a survey on the assessee under Section 133A, the assessment was reopened under Section 148 on the allegation that the assessee was a beneficiary of accommodation entries by way of unsecured loans. Rs. 2,00,00,000 additions under Section 68, Rs. 1,36,948 under Section 69C on interest, and Rs. 27,37,500 on so-called bogus cash sales were made.

CIT (A) Held: Before the CIT(A), the assessee contended that the loans were genuine and backed by confirmations, bank statements, and audited accounts. The CIT(A) confirmed the additions, taking the view that the assessee has failed to establish identity, creditworthiness, and genuineness of the creditors. The assessee approached the Tribunal for the second time, challenging the reopening after four years as bad in law and additions without supporting material.

Main Issue: Whether reassessment begun more than four years without failure to disclose material facts was justified under the proviso to Section 147, and whether additions made under Sections 68 and 69C and the ad-hoc addition of Rs. 27.37 lakh towards presumed bogus cash sales were reasonable.

ITAT’s Decision: The Tribunal noted that for A.Y. 2013-14, assessment under Section 143(3) had already been completed, and the loans in question were examined during original scrutiny. No new tangible material or failure to disclose fully and truly all facts was shown. Referring to the proviso to Section 147 and jurisdictional High Court rulings, it held that the reopening beyond four years was invalid and quashed the reassessment.

For the later years where assessments were processed under Section 143(1) and not under scrutiny, the Tribunal upheld the reopening but deleted the ad-hoc addition of Rs. 27,37,500 made for alleged bogus cash sales. It observed that such an estimate, based only on an employee’s statement without seized evidence or logical nexus, was arbitrary and could not be sustained. The increments towards unsecured loans and interest thereon were sustained since the assessee could not establish the identity, creditworthiness, and authenticity of creditors who were proved to be non-traceable and did not have financial capability. Thus, the redetermination for A.Y. 2013-14 was set aside; the spurious cash sales additions were obliterated over years; and the appeals were partially granted.

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