2011 (7) TMI 1216 - AT - Income Tax

Unexplained Cash Credits u/s 68 - No independent Inquiry by AO - Principal of Natural Jusitice - AO made an addition u/s 68 by treating the share application money as asssessee s own income as bogus cash credit - AO relied upon some statements of directors of Kolkata Based companies for investigation HELD THAT - It is evident from the assessment order that the AO has not conducted any independent enquiry during the assessment proceedings; but simply relied upon the report as well as the statements of the directors of various Kolkata based companies, who have paid the application money. Violation of Principle of Natural Justice - There is gross violation of Natural Justice when the AO asked the assessee to produce the directors for availing opportunity of cross examination. Therefore, there is a total denial of opportunity to the assessee to cross examine the persons, whose statements are used against the assessee. In the case of COMMISSIONER OF INCOME TAX VERSUS ASHWANI GUPTA 2010 (2) TMI 42 - DELHI HIGH COURT , it was held that, AO had passed the assessment order in violation of the principles of natural justice in as much as he had neither provided copies of the seized material to the assessee nor had he allowed the assessee to cross-examine. Regarding unexplained cash credit - It is cleared from the decision of the Hon ble Delhi High Court in the case of COMMISSIONER OF INCOME TAX VERSUS OASIS HOSPITALITIES (PVT.) LTD UP BONE MILLS INDIA LTD. VIJAY POWER GENERATORS LTD. DIRECTOR OF INCOME-TAX 2011 (1) TMI 194 - DELHI HIGH COURT , that once the assessee filed copy of PAN, Acknowledgement coy of the return of income of the investing companies, their bank accounts statements for the relevant period; then even the parties were not produced in spite of the specific directions of the Assessing Officer, the addition could not be sustained as the primary onus was discharged by the assessee by producing the PAN, balance sheet, copy of the acknowledgement copy of return of the applicants etc. The case of the revenue is that the cash moved from the assesse routed though various leveland then reached to the assesse in the form of share application money. The stand of the revenue is not in consonance with the statements of the directors of the investing companies which is the basis of the investigation report as well as addition by the AO. The said statements do not support the case of the revenue and the reliance place by the AO on such statements is highly misplaced and improper. When the stand of the revenue is in total contraction of the material on record then then in view of the latest decision of the Hon ble Delhi High Court in the case of Oasis Hospitalities P Ltd, we are of the considered opinion that the issue can be decided on merit and need not to be remand to the record of the AO because at the time of the order for the AY 2005-06, the coordinate Bench of the Tribunal was not having the benefit of the decision of the Oasis Hospitalities P Ltd. Further in view of the decision of hon ble Gujrat High Court in case of RAJESH BABUBHAI DAMANIA VERSUS COMMISSIONER OF INCOME TAX. 2000 (6) TMI 5 - GUJARAT HIGH COURT , we see no reason for giving the A.O. any further innings to fill up the lacunas or lapses in the assessment which would cause a great injustice to the assesse. The share application money cannot be treated as income of the assessee company until and unless it is proved beyond doubt that the assessee s own money has come back through some closely related applicant. Once the identity of the applicant is disclosed and found as correct, then, even if the said transaction is suspected by the revenue authorities, the same cannot be treated as income of the assessee company which is a public limited company. Accordingly, we delete the addition made by the Assessing Officer - Decision in favour of Assessee

Issues Involved:
1. Addition of Rs. 5,57,50,000 received on allotment of preference share capital.
2. Treatment of business loss as speculation loss under Explanation to sec. 73 of the Act.
3. Charging of interest Rs. 1,87,65,450/- u/s 234B of the Act.

Detailed Analysis:

1. Addition of Rs. 5,57,50,000 received on allotment of preference share capital:
The Assessing Officer (AO) made an addition of Rs. 5,57,50,000 u/s 68 by treating the share application money as bogus cash credit, relying on the investigation report of the ADIT(Inv) Kolkata and statements of the directors of the investing companies. The CIT(A) confirmed this addition. The assessee contended that the identity, genuineness, and creditworthiness of the share applicants were proven through documentary evidence such as PAN numbers, bank transactions, and board resolutions. It was argued that the AO did not conduct independent inquiries and relied solely on the investigation report without providing an opportunity for cross-examination of the directors whose statements were used against the assessee. The Tribunal found that the AO's reliance on uncorroborated statements and the denial of cross-examination violated principles of natural justice. The Tribunal also noted that the AO did not establish a direct link between the alleged cash movement and the assessee. The Tribunal concluded that the share application money could not be treated as the assessee's income, as the identity and genuineness of the transactions were proven. The addition was deleted.

2. Treatment of business loss as speculation loss under Explanation to sec. 73 of the Act:
The assessee did not press this ground during the hearing, and it was dismissed as not pressed.

3. Charging of interest Rs. 1,87,65,450/- u/s 234B of the Act:
The levy of interest u/s 234B was considered consequential. The Tribunal directed the AO to recompute the interest in accordance with the adjudication of other issues.

Conclusion:
The appeal was partly allowed, with the addition of Rs. 5,57,50,000 being deleted, the ground regarding speculation loss dismissed as not pressed, and the AO directed to recompute the interest u/s 234B.

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