2010 (2) TMI 1237 - AT - Income Tax

Addition u/s 68 - Share application money unexplained - onus to prove the identity of the creditors - genuineness of the transactions, creditworthiness of the creditors not proved - as per AO all the transactions are intra-day transactions which reflect that the account is just being used to route such money. The money does not stay in the accounts, so as to suggest that it had been received as and investment. So it is clear that these companies had no actual business and had been used to give accommodation entries - HELD THAT- We find that no document has been submitted to establish identity of the share applicants. It was also not the case of simple share application money. ₹ 10/- worth of shares were purportedly applied for at a premium of ₹ 90/- by strangers. No justification or record whatsoever as to whether the companies credentials commanded a premium of ₹ 90 for shares of ₹ 10 is on record. We find that the Hon ble Apex court decision in the case of Kapurchand Shrimal Vs. CIT, 1981 (8) TMI 2 - SUPREME COURT , it was held that the appellate authority has jurisdiction as well as the duty to correct the errors in the proceedings under appeal. Hon ble Apex Court has further held that in the case of Durga Prasad More 1971 (8) TMI 17 - SUPREME COURT and in the case of Sumati Dayal 1995 (3) TMI 3 - SUPREME COURT has observed that the authorities should not put on blinkers, but should look at the surrounding circumstances also. Therefore, In our opinion, this matter needs to be remitted to the files of the AO to enable him to examine the matter afresh. Accordingly, the matter is remitted to the files of the AO. Revenue appeal is allowed for statistical purposes. Reopening of assessment - reason to believe - HELD THAT - The return was processed u/s 143(1). Hon ble Apex court in the case of Rajesh Jhaveri 2007 (5) TMI 197 - SUPREME COURT has held that intimation u/s143(1)(a) cannot be treated to be an order of reassessment. Therefore, there is no question of forming of opinion in such a case. Section 147 of the IT Act mandates that AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may assess or reassess of such income. Now in this case AO has information from the Investigation Wing of the Department that assessee has taken accommodation entries to the tune of ₹ 16 lacs (Rs. 4 lacs each) and these amounts were found credited in the companies accounts maintained with the SBI, Hyderabad, Karol Bagh, New Delhi during the period relating to 2003-04. Hon ble Apex Court in the case Raymond Woolen Mills Vs. ITO 1997 (12) TMI 12 - SUPREME COURT has held that regarding the reason for reopening there should be prima-facie material, the sufficiency or correctness of material need not be established at the time of recording of reasons for reopening. Hence, objections from the assessee regarding reopening are untenable. Therefore, we uphold the order of the ld. CIT(A) holding the reopening as valid. Accordingly, the cross objection filed by the assessee is dismissed.

Summary

Issues Involved:
1. Deletion of addition of Rs. 16,00,000/- under section 68 of the IT Act.
2. Validity of notice issued under section 148 of the IT Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 16,00,000/- under Section 68 of the IT Act:

The assessee filed its return of income declaring an income of Rs. 3010/-. The Assessing Officer (AO) received information that the assessee had taken accommodation entries amounting to Rs. 16 lacs from four specified companies. The AO observed that the bank accounts of these companies showed frequent deposits and withdrawals, indicating that they were used for routing accommodation entries. The AO asked the assessee to produce the directors of these companies, but they did not attend. The assessee submitted affidavits from the directors and argued that the AO could use his powers under section 131 to summon them. The AO added Rs. 16 lacs to the assessee's income under section 68, as the assessee failed to prove the identity, genuineness, and creditworthiness of the creditors.

The CIT(A) deleted the addition, noting that the share application money was received by account payee cheques and the companies were registered under the Companies Act. The CIT(A) relied on the jurisdictional High Court's decision in the case of Divine Leasing Ltd., which held that when the identity of the person is established and the amount is received by cheque, no addition should be made.

On appeal, the Tribunal found that the assessee had only submitted affidavits from the directors and had not provided documents such as ROC registration certificates, PAN details, income tax returns, or balance sheets of the companies. The Tribunal noted that the CIT(A) had incorrectly inferred that the identity of the companies was established. The Tribunal also observed that the share premium of Rs. 90/- for shares of Rs. 10/- each was not justified. Citing the Apex Court's decisions in Kapurchand Shrimal and Durga Prasad More, the Tribunal remitted the matter to the AO for fresh examination.

2. Validity of Notice Issued Under Section 148 of the IT Act:

The assessee argued that the notice under section 148 was illegal and void ab initio, as there was no "reason to believe" that income had escaped assessment. The assessee contended that the reasons recorded did not contain the basic jurisdictional element and that the AO had acted on the direction of the Investigation Wing without forming his own belief.

The CIT(A) held that the AO had reasons to believe that income had escaped assessment based on the information from the Investigation Wing, which indicated that the assessee was a beneficiary of accommodation entries. The CIT(A) noted that the AO had information that the assessee had credited Rs. 16 lacs in its books as share application money, and the entry providers had admitted to being entry operators.

The Tribunal upheld the CIT(A)'s order, noting that the return was processed under section 143(1) and there was no question of forming an opinion. The Tribunal referred to the Apex Court's decision in Rajesh Jhaveri, which held that intimation under section 143(1)(a) cannot be treated as an order of reassessment. The Tribunal also cited the Apex Court's decision in Raymond Woolen Mills, which held that there should be prima facie material for reopening, and the sufficiency or correctness of the material need not be established at the time of recording reasons. The Tribunal dismissed the assessee's cross objection, holding the reopening as valid.

Conclusion:

The appeal filed by the revenue was allowed for statistical purposes, and the cross objection filed by the assessee was dismissed. The matter regarding the addition of Rs. 16 lacs was remitted to the AO for fresh examination, and the reopening of the assessment was upheld as valid.