2016 (5) TMI 1298 - AT - Income Tax

Addition u/s 68 - Held that - It is evident that the share applicant company has given the confirmation on its letter head which gives the complete address of the said company. In the confirmation, number of shares applied and the amount invested has been given. Details of payments i.e., cheque number, date of cheque and name of the bank on whom cheque is drawn is given. Address of the bank and bank account number has also been given, source of fund is given as well as permanent account number of the company is also given. Addition for unexplained expenditure on alleged commission - Held that - The addition relating to unexplained expenditure on alleged commission on the share application money is made by the Assessing Officer on the presumption that the assessee has taken the accommodation entry and for availing such accommodation entry, the assessee paid the commission. We have not accepted the Revenue s contention that the assessee has taken the accommodation entry in the form of share capital. Therefore, the allegation of the Revenue that the assessee has paid commission for taking the accommodation entry cannot be accepted. Accordingly, the addition made for unexplained expenditure on alleged commission is deleted.

Issues Involved:
1. Addition of ?3.60 crores under Section 68 on account of share capital.
2. Addition of ?8,10,000/- on account of alleged commission paid for obtaining accommodation entries.
3. Validity of assessment under Section 153A.
4. Lack of incriminating material found during the search.
5. Opportunity for cross-examination of a third party witness.

Detailed Analysis:

1. Addition of ?3.60 crores under Section 68 on account of share capital:
The assessee challenged the addition of ?3.60 crores made by the Assessing Officer (AO) under Section 68, claiming it as unexplained cash credit. The AO alleged that the share application money received was an accommodation entry and added it to the assessee's income. The assessee argued that no incriminating material was found during the search to support this addition. The Tribunal noted that no loose papers or other evidence indicating accommodation entries in the form of share capital were found during the search. The Tribunal relied on the decisions of the Hon'ble Delhi High Court in CIT Vs. Kabul Chawla and CIT Vs. RRJ Securities Ltd., which held that in the absence of incriminating material, additions cannot be made under Section 153A for completed assessments. Consequently, the Tribunal deleted the addition of ?3.60 crores.

2. Addition of ?8,10,000/- on account of alleged commission paid for obtaining accommodation entries:
The AO made an addition of ?8,10,000/- as unexplained expenditure, alleging that the assessee paid commission for obtaining accommodation entries. The assessee contended that no incriminating material was found during the search to support this addition. The Tribunal observed that the AO's addition was based on presumption without any supporting evidence. The Tribunal reiterated that no incriminating material was found during the search to establish the payment of commission. Therefore, the addition of ?8,10,000/- was also deleted.

3. Validity of assessment under Section 153A:
The assessee argued that the assessment under Section 153A was invalid as it was not based on any incriminating material found during the search. The Tribunal referred to the legal position summarized by the Hon'ble Delhi High Court in Kabul Chawla, which held that in the absence of incriminating material, completed assessments cannot be interfered with under Section 153A. The Tribunal concluded that since no incriminating material was found during the search, the assessment under Section 153A was invalid.

4. Lack of incriminating material found during the search:
The Tribunal emphasized that no incriminating material related to share capital or payment of commission was found during the search. The Tribunal referred to the statement of Shri Anu Aggarwal, director of the assessee company, which indicated that the loose papers found during the search were related to unaccounted receipts from the sale of properties and unrecorded expenditure in the construction business. The Tribunal held that in the absence of any incriminating material related to share capital or commission, the additions made by the AO were out of the purview of Section 153A.

5. Opportunity for cross-examination of a third party witness:
The AO relied on the statement of Shri Tarun Goyal, who allegedly admitted to providing accommodation entries to the assessee. The assessee contended that the statement of Shri Tarun Goyal was recorded behind its back and it was not given an opportunity to cross-examine him. The Tribunal noted that the statement of a third party recorded behind the back of the assessee cannot be used against the assessee unless an opportunity for cross-examination is provided. The Tribunal observed that despite specific directions from the CIT(A), the AO did not allow the assessee to cross-examine Shri Tarun Goyal. Therefore, the Tribunal held that the statement of Shri Tarun Goyal could not be used against the assessee.

Conclusion:
The Tribunal allowed the appeals of the assessee, deleting the additions made by the AO for unexplained share capital and alleged commission. The Tribunal held that the assessment under Section 153A was invalid in the absence of incriminating material found during the search. The Tribunal emphasized the importance of providing an opportunity for cross-examination of third party witnesses and reiterated that statements recorded behind the back of the assessee cannot be used against it without such an opportunity. The Tribunal's decision was based on the principles laid down by the Hon'ble Delhi High Court and the Hon'ble Supreme Court regarding the validity of assessments under Section 153A and the evidentiary value of statements recorded during search operations.

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