2011 (10) TMI 589 - AT - Income Tax

Unexplained income of u/s 68 - Held that - We uphold the order of the Ld. Commissioner of Income Tax (Appeals) directing that the addition of ₹ 3,43,00,000/- is liable to be deleted. Since the addition of ₹ 3,43,00,000/- u/s. 68 has been deleted, we agree that the there is no basis for sustaining the addition of ₹ 6,86,000/- u/s 69C, the same is also directed to be deleted. Hence, we uphold the order of the Ld. Commissioner of Income Tax (Appeals) and decide the issue in favour of the assessee. Hence, the Revenue s appeal stands dismissed.

Issues Involved:
1. Deletion of addition made on account of unexplained income under section 68 of the Income Tax Act.
2. Deletion of addition made under section 69C of the Income Tax Act.
3. Validity of reassessment proceedings.

Detailed Analysis:

1. Deletion of Addition Made on Account of Unexplained Income under Section 68:

The Revenue contested the deletion of Rs. 3,43,00,000 added as unexplained income under section 68. The Assessing Officer (AO) questioned the genuineness of the share capital received by the assessee company, citing that the parties who subscribed to the share capital were not found at the given addresses, and there were suspicious cash deposits before issuing cheques. The AO relied on judgments like CIT vs. Durga Prasad More and ITO vs. K. Jayaraman to support the addition.

The Commissioner of Income Tax (Appeals) [CIT(A)] observed that the assessee had furnished substantial evidence, including affidavits, bank statements, and PAN details, to support the identity and creditworthiness of the parties and the genuineness of the transactions. The CIT(A) criticized the AO for not making independent efforts to verify the evidence or enforce the appearance of the parties. The CIT(A) also noted that no cross-examination was provided to the assessee, and no evidence was brought to establish that the transactions were sham.

The Tribunal agreed with the CIT(A), citing the Supreme Court's decision in CIT vs. Lovely Exports, which held that if the share application money is received from alleged bogus shareholders whose names are provided, the Department should reopen their individual assessments rather than treating it as undisclosed income of the assessee. The Tribunal also referred to the Delhi High Court's decision in CIT vs. Dwarkadhish Investment P Ltd., which emphasized that once the assessee proves the identity of the creditors and the genuineness of the transaction, the onus shifts to the Revenue.

2. Deletion of Addition Made under Section 69C:

The AO made an additional Rs. 6,86,000 addition under section 69C, assuming it as commission paid for accommodation entries. The CIT(A) deleted this addition, reasoning that since the primary addition under section 68 was deleted, there was no basis for the section 69C addition.

The Tribunal upheld the CIT(A)'s decision, agreeing that without the section 68 addition, the section 69C addition could not be sustained.

3. Validity of Reassessment Proceedings:

The assessee challenged the reassessment proceedings, claiming they were bad in law and beyond the jurisdiction of the AO. However, the Tribunal found this issue academic and infructuous since the appeal was already decided on merits in favor of the assessee.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the additions under sections 68 and 69C. The cross-objection by the assessee regarding the validity of reassessment proceedings was also dismissed as infructuous. The order was pronounced in the open court on 14/10/2011.

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