2010 (3) TMI 1108 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 4,80,00,000 on account of bogus share application money.
2. Deletion of addition of Rs. 4,80,000 on account of commission/extra charges.
3. Validity of proceedings under sections 147/148 of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Deletion of addition of Rs. 4,80,00,000 on account of bogus share application money:
The Assessing Officer (AO) had added Rs. 4,80,00,000 to the assessee's income, claiming it was bogus share application money from 15 entities. This was based on a survey under section 133A and statements from entry operators and a director of the assessee company, who admitted to routing unaccounted money as share capital. The AO found that the companies providing the share application money were non-genuine and only provided accommodation entries. The AO rejected the assessee's evidence, including confirmations, bank statements, and the fact that these companies were registered and active as per the Registrar of Companies (RoC).

The CIT(A) deleted the addition, stating that the assessee had provided sufficient evidence of the identity, creditworthiness, and genuineness of the transactions. The CIT(A) relied on various judicial pronouncements, including the Supreme Court's decision in CIT vs. Lovely Exports (P) Ltd., which held that if the identity of the subscribers is established, no addition can be made under section 68. The CIT(A) also noted that the statement of the director was not corroborated by any material evidence found during the survey.

2. Deletion of addition of Rs. 4,80,000 on account of commission/extra charges:
The AO had added Rs. 4,80,000 as commission paid to obtain the bogus share application entries. This was based on statements from entry operators who admitted to providing accommodation entries for a commission. The CIT(A) deleted this addition as well, stating that the AO did not provide any corroborative material evidence to support the claim that the assessee paid any commission for obtaining the entries.

3. Validity of proceedings under sections 147/148 of the Income Tax Act, 1961:
The assessee challenged the initiation of reassessment proceedings under sections 147/148, arguing that the AO had no valid reasons to believe that income had escaped assessment. The CIT(A) upheld the validity of the reassessment proceedings, stating that the AO had sufficient reasons to believe that income had escaped assessment based on the statements and evidence gathered during the survey. The CIT(A) noted that the AO's belief could be formed in any manner and was not qualified by the precondition of full and true disclosure by the assessee.

Conclusion:
The ITAT examined the detailed findings of the AO and CIT(A). It noted discrepancies in the addresses and details provided by the assessee and the statements of entry operators. The ITAT found that the CIT(A) did not properly appreciate the peculiar facts of the case and the substantial material with the Department indicating that the share application money was not genuine. The ITAT restored the matter to the AO for a thorough verification, providing the assessee an opportunity to substantiate its claim that the share application money was genuine. The appeal by the Revenue was allowed for statistical purposes, and the cross-objection by the assessee was dismissed.