ITAT Chandigarh Deletes Rs. 8.44 Crore Section 69A Addition, Declares Reassessment Proceedings Legally Untenable Due to Factually Incorrect Information

Case Overview

Case: ITO Vs Gulmohar Associates
Forum: Income Tax Appellate Tribunal, Chandigarh
Assessment Year: 2014–15
Sections Involved: Section 69A, Section 115BBE, Section 147, Section 148, Section 142(1), Section 143(2), Section 144B, Section 250 of the Income-tax Act, 1961

The Income Tax Appellate Tribunal (ITAT), Chandigarh, delivered a significant ruling in the case of ITO Vs Gulmohar Associates, adjudicating both a Revenue appeal and a cross-objection raised by the assessee against the order of the CIT(A)/NFAC, Delhi dated 06.12.2024 pertaining to Assessment Year 2014–15. The Tribunal not only upheld the deletion of an addition of ₹8,44,23,000/- made under Section 69A of the Income-tax Act, 1961, but also declared the very initiation of reassessment proceedings under Section 147 to be bad in law, owing to fundamentally incorrect information forming the basis of reopening.

Background and Facts of the Case

Nature of the Assessee and Business Activity

Gulmohar Associates is a partnership firm engaged in real estate activities, including resale of properties, and functioning as a builder and colonizer. During the financial year 2013–14, relevant to Assessment Year 2014–15, the firm had not conducted any active business operations. Significantly, the assessee had not filed its original return of income for the said year.

How Reassessment Was Triggered

The Income Tax Department, acting on data sourced from the Insight Portal, received information suggesting that the assessee maintained three separate current accounts with ICICI Bank, Urban Estate, Patiala, with aggregate non-cash credits amounting to ₹19,20,81,169/-. The details as per the Insight Portal information were as follows:

Relying on this data, the Assessing Officer obtained requisite approval from the competent authority and issued a notice under Section 148 dated 31.03.2021, reopening the assessment under Section 147 of the Income-tax Act, 1961.

Response Filed by the Assessee

In response to the Section 148 notice, the assessee filed its return of income on 30.12.2021, declaring total income at Nil. During the reassessment proceedings, statutory notices under Section 142(1) and Section 143(2) were issued electronically by the Assessing Officer, requiring submission of bank statements, details of cash and non-cash credits, nature of transactions, and supporting documentary evidence.

The assessee submitted:

• Bank statements
• Computation of income
• Balance sheet
• Explanation that no property sale occurred during the year
• Details showing that deposits comprised capital contributions and advances related to real estate transactions

Assessing Officer's Findings and Addition Made

On scrutinizing the bank statement of current account No. 079005500178 maintained with ICICI Bank, Urban Estate, Patiala, the Assessing Officer observed:

• Cash deposits: ₹14,00,000/-
• Non-cash deposits: ₹8,30,23,000/-
• Total deposits: ₹8,44,23,000/-

The Assessing Officer took the position that:

1. The assessee failed to satisfactorily explain the nature and source of these credits with cogent documentary evidence
2. No agreements, property details, or corroborative evidence were produced
3. The transactions were not recorded in the books of account, nor reported in the return of income
4. The bank account appeared to have been used as a conduit for routing funds between entities

On these grounds, the entire amount of ₹8,44,23,000/- was treated as unexplained money under Section 69A read with Section 115BBE of the Income-tax Act, 1961, and added to the total income of the assessee. Objections raised by the assessee against reopening were also rejected by the Assessing Officer.

First Appeal: CIT(A)/NFAC Deletes the Addition

Documents Furnished Before CIT(A)

Before the CIT(A), the assessee placed on record a comprehensive set of documents, including: