2010 (1) TMI 936 - AT - Income Tax

Unexplained income - Share application money - unexplained expenditure in respect of the commission for arranging the share application money - as per DR evidence produced also does not show any evidence to prove the purchase of shares from the assessee - it cannot be said that the assessee has discharged the onus cast upon it to prove the identity, genuineness or creditworthiness of the share applicants and the purchasers of the shares held as investment by the assessee company - Held that - As it cannot be said that the assessee has discharged the onus cast upon it to prove the identity, genuineness or creditworthiness of the share applicants and the purchasers of the shares held as investment by the assessee company. However a perusal of the assessment order shows that the assessee has not been given adequate opportunity to produce the share applicants and the purchasers of the shares. This is because summons u/s 131 had been issued on 29.11.2007 to the share applicants and to the persons who had purchased the shares. On 6.12.2007 on their failure, the show cause notice has been issued to the assessee and the assessment has been completed on 14.12.2007. Thus, it cannot be said that the mandatory provision for natural justice being a minimum of 15 days has been given to the assessee in respect of the summons issued u/s 131. Thus, a procedural lapse has taken place in the assessment. In these circumstances, these issues must be restored to the file of the A.O. for providing the assessee adequate opportunity to produce the share applicants as also the purchasers of the shares from the assessee.

Issues Involved:
1. Share application money received by the assessee.
2. Sale proceeds of the shares.
3. Deletion of addition made by the A.O. on account of unexplained expenditure in respect of the commission for arranging the share application money and the sale proceeds of the shares.

Issue-wise Detailed Analysis:

1. Share Application Money Received by the Assessee:
The revenue appealed against the deletion of the addition of share application money by the CIT(A), arguing that the identity of the share applicants was disputed. The A.O. had directed the assessee to produce the share applicants, but the assessee failed to do so. Despite providing names and addresses, the notices issued by the A.O. received no response. Statements from individuals allegedly involved in giving bogus entries were provided to the assessee, but cross-examination was not allowed. The CIT(A) deleted the addition based on the identity of the share applicants being known and the amount received by cheque, relying on the Supreme Court decision in Lovely Exports Pvt. Ltd. The Tribunal noted discrepancies in the addresses and PAN details of the share applicants, questioning the genuineness and identity of the applicants. The Tribunal found procedural lapses and inadequate opportunity for the assessee to produce evidence, thus restoring the issue to the A.O. for re-adjudication with specific directions to provide adequate opportunity and ensure proper verification.

2. Sale Proceeds of the Shares:
The revenue contended that the sale proceeds of the shares were not verified properly as the purchasers were not available at the given addresses, and the brokers involved did not exist at the specified addresses. The CIT(A) clubbed the findings related to the share application money with the sale proceeds and deleted the addition without specific reasons. The Tribunal observed that the assessee failed to produce the purchasers or provide adequate evidence of the transactions. The Tribunal highlighted the need for proper verification of the share transfer and the identity of the purchasers, restoring the issue to the A.O. for re-adjudication with directions to verify the returns filed by the purchasers and ensure the shares were transferred correctly.

3. Deletion of Addition on Account of Unexplained Expenditure:
The revenue appealed against the deletion of the addition made by the A.O. for unexplained expenditure related to commission for arranging share application money and sale proceeds. The CIT(A) deleted the addition without specific reasons. The Tribunal noted that this issue was intertwined with the issues of share application money and sale proceeds. Given the procedural lapses and the need for re-adjudication of the primary issues, the Tribunal restored this issue to the A.O. for re-adjudication, directing the A.O. to provide adequate opportunity to the assessee and ensure proper verification.

Conclusion:
The Tribunal found procedural lapses and inadequate opportunity provided to the assessee in the assessment process. It restored all issues to the A.O. for re-adjudication, directing the A.O. to provide adequate opportunity to the assessee to produce evidence, verify the identities and transactions properly, and ensure compliance with natural justice principles. The appeals of the revenue were partly allowed for statistical purposes.

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