2012 (2) TMI 194 - HC - Income Tax

Unexplained credits alleged bogus share application money received assessment reopened on the basis of information received by A.O. from DIT (Investigation), furnishing information regarding entry operators/accommodation providers statements of directors of company providing entry taken - Tribunal deleted addition made u/s 68 assessee stating that documentary evidence regarding identity and creditworthiness of the share applicants and the genuineness of the transactions were produced - Held that -The Tribunal, apart from adopting an erroneous legal approach, also failed to keep in view the material that was relied upon by the Assessing Officer. Involvement of the assessee in such modus operandi is clearly indicated by valid material made available to the A.O. as a result of investigations carried out by the revenue authorities into the activities of such entry providers . Therefore, we are unable to uphold the order of the Tribunal confirming the deletion of the addition made u/s 68 Decided in favor of Revenue.

Issues Involved:
1. Validity of the reopening of assessment under Section 147/148 of the Income Tax Act.
2. Addition of Rs.1,18,50,000/- under Section 68 of the Income Tax Act.
3. Addition of Rs.2,96,250/- as commission for obtaining accommodation entries.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 147/148:
The assessee challenged the jurisdiction of the Assessing Officer (AO) to reopen the assessment. The CIT(A) rejected this contention, noting that the information from the investigation wing was specific and detailed, providing a rational nexus for the AO's belief that income had escaped assessment. The Tribunal upheld this view, confirming that the AO had rightly assumed jurisdiction under Section 147 based on specific information linking the assessee to accommodation entries.

2. Addition of Rs.1,18,50,000/- under Section 68:
The AO added Rs.1,18,50,000/- to the assessee's income, invoking Section 68, on the grounds that the share application monies were not genuine. The CIT(A) deleted this addition, citing that the assessee had provided substantial documentary evidence (confirmations, income tax file numbers, ROC records, affidavits) to prove the identity and creditworthiness of the share applicants and the genuineness of the transactions. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO had not disproved the documentary evidence provided by the assessee.

However, the High Court found significant flaws in the CIT(A) and Tribunal's findings. It noted that the affidavits from Mukesh Gupta and Rajan Jassal, which retracted their earlier statements implicating the assessee, were not credible due to the delay and lack of cross-examination. The High Court emphasized that the AO's findings, based on the investigation wing's material and the modus operandi of entry providers, were sufficient to discredit the transactions. The High Court concluded that the evidence pointed to the assessee introducing its own unaccounted money as share application money, thus reversing the Tribunal's decision and reinstating the AO's addition under Section 68.

3. Addition of Rs.2,96,250/- as Commission:
The AO also added Rs.2,96,250/- as commission allegedly paid to the entry providers. The CIT(A) deleted this addition, reasoning that it was consequential to the deletion of the primary addition under Section 68. The Tribunal upheld this view. However, the High Court, reversing the Tribunal's decision on the primary addition, also reinstated the commission addition, noting that it was logically connected to the accommodation entries.

Conclusion:
The High Court reversed the Tribunal's order, confirming the AO's additions of Rs.1,18,50,000/- under Section 68 and Rs.2,96,250/- as commission. The court emphasized that the assessee failed to prove the genuineness of the transactions and the creditworthiness of the share applicants, and the AO's findings based on the investigation wing's material were valid. The court also highlighted the importance of scrutinizing the evidence in-depth, considering the surrounding circumstances and the modus operandi of entry providers.

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