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2012 (10) TMI 487 - AT - Income TaxBogus unexplained credit - Addition made u/s 68 - reopening of assessment - CIT (A) deleted the addition - Held that - The CIT (A) found as a fact that the assessee had duly filed the documentary evidence concerning these two parties before the AO in the form of confirmation from the investor company, its acknowledgement of return, PAN, Board s Resolution, Form Nos.18 and 32 filed with the ROC, bank statement and audited balance sheet. This documentary evidence was found to support the identity of the investor companies and to establish the genuineness of the share capital money transaction. AO had not brought any material on record to prove that the money in question was the assessee s own undisclosed income & had simply explained the modus operandi involved in accommodation entry transactions and had merely relied on the information received from the Investigation Wing, without verifying the facts, that from the evidence on record, it was observed that the subscription of share capital was received by the assessee from the two investor companies through cheques and the companies were duly registered with the ROC and that it had been submitted on behalf of the assessee that the companies were having PAN and were regularly filing their returns of income, but the AO had not tried to ascertain their latest addresses from the assessee, for conducting any further inquiry in their cases, thus In the absence of these inquiries and non-verification of the details at the time of assessment proceedings, the factual findings recorded by the Assessing Officer were incomplete and sparse - in favour of assessee.
Issues Involved:
1. Deletion of addition made under Section 68 of the Income-tax Act due to the alleged failure of the assessee to prove the genuineness/credit-worthiness of the share applicants. 2. Validity of the re-assessment proceedings initiated under Section 147 of the Income-tax Act. Detailed Analysis: 1. Deletion of Addition under Section 68: The department challenged the order of the CIT (A) which deleted the addition made by the Assessing Officer (AO) under Section 68 of the Income-tax Act. The AO had received information from the Investigation Wing that the assessee had taken accommodation entries from certain entry operators and introduced sums as share capital, amounting to Rs. 10,01,500/-. The AO added this amount to the assessee's income as unexplained credit. The CIT (A) deleted this addition, leading to the department's appeal. The department contended that the assessee failed to prove the genuineness and credit-worthiness of the share applicants, relying heavily on the case of "Nova Promoters", 342 ITR 169 (Del). The assessee, however, argued that the identity of the share applicants was duly proved, citing "CIT vs. Lovely Exports", 299 ITR 268 (SC), which states that once the identity of the shareholders is established, no addition can be made in the hands of the assessee company in the absence of any adverse evidence. The assessee provided comprehensive documentation for the share applicants, including share applications, cheques, bank statements, board resolutions, ITR acknowledgements, and ROC filings. The CIT (A) observed that the AO had accepted the identity and genuineness of the shareholders but challenged the source of the amount and the credit-worthiness of the parties without verifying the facts or conducting further inquiries. The CIT (A) relied on several judgments, including "CIT vs. Lovely Exports Pvt. Ltd." and "CIT vs. Value Capital Services P. Ltd.", to support the deletion of the addition. The Tribunal found that the AO failed to bring any material on record to prove that the money in question was the assessee's own undisclosed income. The AO merely relied on the information from the Investigation Wing without verifying it. The Tribunal upheld the CIT (A)'s order, noting that the documentary evidence provided by the assessee supported the identity and genuineness of the transactions. 2. Validity of Re-assessment Proceedings under Section 147: The assessee contended under Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963, that the AO was not justified in initiating re-assessment proceedings under Section 147. The assessee argued that the reopening was barred by limitation, as it was not within four years from the end of the assessment year, and there was no omission or failure on the part of the assessee to disclose correct particulars of its income. The CIT (A) had held that the notice for reopening was valid, being within the time limit and issued with due permission as laid down in Sections 149/151 of the Act. The CIT (A) also held that the reason to believe escapement of income was valid, based on specific information from the Investigation Wing. Since the matter was decided on merits, the Tribunal did not need to address the preliminary objection under Rule 27. Conclusion: The Tribunal dismissed the department's appeal, confirming the CIT (A)'s order that deleted the addition made under Section 68. The Tribunal found no error in the CIT (A)'s well-reasoned order and rejected the department's contentions. The Tribunal also did not find it necessary to address the validity of the re-assessment proceedings, as the matter was resolved on merits. Order Pronounced: The appeal filed by the department was dismissed, and the order was pronounced in the open court on 05.10.2012.
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