2017 (1) TMI 1451 - AT - Income Tax

Addition u/s 68 - identity of creditor - reliance on information borrowed - Held that - The decision of the AO is based on the information received from the Investigation Wing statement given by Auditor of M/s VPC Financial Pvt. Ltd. statement of General Manager Hindustan Times Group and submission made by the assessee. The information received from the Investigation Wing is very scanty without any details of bank account and the name of the creditors. AO did not make any enquiry to reveal the real nature of the information received. Hence the AO could ascertain the names of the creditors only from the details given by the assessee in response to notice u/s. 148. With regard to reliability of the CA who was supposed to sign the balance sheet the name of the company mentioned in the reply to question no. 4 mentioned in the impugned assessment order is Mehul Finvest Pvt. Ltd. and not M/s VPC Financial Services Pvt. Ltd. Thus the statement cannot be used as a proof regarding identity issue of the creditor. The statement of General Manager of Hindustan Times Group only indicates that there was transfer of ownership of M/s VPC Financial Services Pvt. Ltd. Thus the identity of creditor is established. Moreover these third party evidences are never confronted to the person confirming the transaction. The AO did not make any further enquiry to verify whether the payment made by the creditor through the banking channel is actually travelled from the coffers of the assessee. Regarding the second category of creditors the AO did not even mention the source of information he received. No further enquiry was made about these creditors and addition has been made only the based on some assumptions. Hence the observation of the Ld. CIT(A) that certainly addition u/s. 68 cannot be justified with a casual approach was right. - Decided in favour of assessee.

Summary

Issues:
1. Deletion of addition made as cash credits u/s. 68 on account of share application money.
2. Deletion of addition made as cash credits u/s. 68 of the Income Tax Act.
3. Deletion of addition made on account of commission paid to entry operator.
4. Validity of Ld. CIT(A)'s order.
5. Legal and factual grounds for appeal.

Analysis:

Issue 1: Deletion of addition made as cash credits u/s. 68 on account of share application money:
The Revenue challenged the deletion of the addition of ?15,00,000 as cash credits u/s. 68. The case was reopened based on information received regarding accommodation entry in the form of share application money. The Ld. CIT(A) quashed the assessment, noting that the AO failed to establish the cash credit with proper evidence. The Tribunal upheld the decision, stating that the AO's assessment lacked proper application of mind and the Revenue did not challenge this legal ground, leading to the dismissal of the appeal.

Issue 2: Deletion of addition made as cash credits u/s. 68 of the Income Tax Act:
The Revenue contested the deletion of the addition of ?28,00,000 as cash credits u/s. 68. The Ld. CIT(A) found the information received inadequate and scanty, without proper details of bank accounts or creditors' names. The AO did not conduct necessary inquiries to verify the information. The Tribunal concurred with the Ld. CIT(A)'s findings, upholding the deletion of the addition due to insufficient evidence and lack of proper verification.

Issue 3: Deletion of addition made on account of commission paid to entry operator:
The Revenue disputed the deletion of the addition of ?45,000 as commission paid to the entry operator. The Ld. CIT(A) considered the submissions and evidence provided by the appellant, highlighting deficiencies in the AO's assessment process. The Tribunal agreed with the Ld. CIT(A)'s reasoning, emphasizing the need for thorough investigation and proper verification before making such additions under section 68.

Issue 4: Validity of Ld. CIT(A)'s order:
The Ld. CIT(A) partly allowed the appeal of the assessee by deleting certain additions made by the AO. The Tribunal reviewed the Ld. CIT(A)'s order and found it well-reasoned both on legal and merit grounds. The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing the inadequacy of evidence and lack of proper inquiry by the AO in making the additions.

Issue 5: Legal and factual grounds for appeal:
During the hearing, the Ld. DR supported the AO's order, while the Assessee's Counsel relied on the Ld. CIT(A)'s decision. The Tribunal noted the legal issue of quashing the assessment due to insufficient evidence and lack of proper inquiry by the AO. The Tribunal dismissed the Revenue's appeal on legal grounds and upheld the Ld. CIT(A)'s decision on merit, emphasizing the importance of thorough investigation and proper verification in such cases.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the Ld. CIT(A)'s decision to delete the additions made by the AO due to insufficient evidence, lack of proper inquiry, and the need for a more thorough assessment process.