2006 (10) TMI 261 - AT - Income Tax

Summary

Issues Involved:
1. Ex parte assessment under Section 144.
2. Addition of share capital and secured loans as income under Section 69.
3. Admission of fresh evidence by the CIT(A).
4. Conducting an enquiry by the CIT(A) versus the Assessing Officer.
5. Verification of identity, creditworthiness, and genuineness of transactions.

Issue-wise Detailed Analysis:

1. Ex parte Assessment under Section 144:
The assessee, a telecom consultancy and technology products company, filed a return declaring total income under Section 115JA. Due to non-attendance to several notices, the Assessing Officer completed the assessment ex parte under Section 144. The CIT(A) upheld the ex parte assessment in principle.

2. Addition of Share Capital and Secured Loans as Income under Section 69:
The Assessing Officer noted an increase in share capital to Rs. 2 crore and secured loans to Rs. 98,67,000, treating these as income under Section 69 due to the assessee's failure to explain these items. The total addition amounted to Rs. 1,43,37,219. The CIT(A) required the assessee to furnish detailed information about the shares and share application money. After examining the evidence, the CIT(A) deleted Rs. 96,49,219 but confirmed Rs. 46,88,000, leading to appeals from both the department and the assessee.

3. Admission of Fresh Evidence by the CIT(A):
The CIT(A) admitted fresh evidence submitted by the assessee, including names, addresses, PANs, and confirmations from shareholders. The Assessing Officer objected to the admission of fresh evidence and requested an opportunity to verify it. The CIT(A) admitted the evidence, citing the best judgment assessment as a reason, but did not provide a detailed justification under Rule 46A.

4. Conducting an Enquiry by the CIT(A) versus the Assessing Officer:
The department argued that the CIT(A) should have directed the Assessing Officer to conduct the enquiry due to the copious material involved. The CIT(A) has the power under Section 250(4) to conduct enquiries but chose to do it himself. The Tribunal noted that while the CIT(A) has the authority, it would have been more appropriate to have the Assessing Officer conduct the enquiry due to the complexity and volume of evidence.

5. Verification of Identity, Creditworthiness, and Genuineness of Transactions:
The CIT(A) accepted share contributions where the identity of shareholders was proved through confirmatory letters and PANs. However, the Tribunal emphasized that the creditworthiness and genuineness of transactions also need verification. The CIT(A) did not verify the income-tax records of shareholders or contact them directly, which would have been necessary to establish the existence and genuineness beyond doubt.

Conclusion:
The Tribunal set aside the CIT(A)'s order and remanded the case to the Assessing Officer to examine the evidence and decide afresh. The Tribunal highlighted that the CIT(A) should have directed the Assessing Officer to conduct the enquiry due to the substantial amount and complexity of the evidence involved. Both appeals are allowed for statistical purposes.