2012 (12) TMI 128 - AT - Income Tax

Re-opening of Assessment - application of his mind by the AO before issuance of notice u/s 148 - Held that - a precise and definite information was received by the AO regarding receipt of accommodation entries in respect of capital from various persons aggregating to ₹ 14.45 lakh. He compared the information with the information available in the return of the assessee. As the information could not be matched, he recorded definite reasons in clear terms that income escaped assessment. - AO rightly reopened the assessment by adhering to the relevant provision and following the right procedure provided under the rule. - Decided against the assessee. Defect in issuance of notice u/s 143(2) for the purpose of reassessment - held that - The only missing words are any evidence on which the assessee may rely in support of the return . Absence of these words may lead to prima facie view that the notice does not conform to the statutory language. However, section 292B provides that no notice etc. issued or purported to have been issued in pursuance of any of the provisions of the Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in the notice provided that such notice is in substance and effect in conformity with or according to the intent and purpose of this Act. - Decided against the assessee. Addition u/s 68 - accommodation entries - held that - latest decision COMMISSIONER OF INCOME TAX VERSUS NOVA PROMOTERS & FINLEASE (P) LTD (2012 (2) TMI 194 - DELHI HIGH COURT) covers plethora of cases on the subject. It does appear to us that this case makes a distinction between credits simplicitor and credits received through hawala operators, the bank accounts of which are spurious in the sense that most of the entries are in respect of debits and credits of the same amount with very little balance staying in the account at any other point of time. - Decided against the assessee.

Summary

Issues Involved:
1. Validity of notice issued under Section 148.
2. Issuance of notice under Section 143(2).
3. Deletion of addition made under Section 68 for unexplained credits.

Detailed Analysis:

1. Validity of Notice Issued Under Section 148:
The primary contention was whether the notice issued under Section 148 was valid. The facts indicated that the return declaring a loss of Rs. 12,442 was filed and processed under Section 143(1). Subsequently, information was received from the Investigation Directorate about certain bank accounts used for issuing cheques against cash payments, implicating the assessee in receiving accommodation entries aggregating to Rs. 14.45 lakh. The AO recorded reasons for reopening the assessment and issued a notice under Section 148.

The CIT (Appeals) found that the AO had specific and precise information about the entry providers and formed a prima facie opinion that warranted further investigation. The Tribunal upheld this view, noting that the AO had verified the information with the return of income and concluded that there was a reason to believe that income had escaped assessment. The Tribunal distinguished this case from others where the AO had not applied independent mind and relied solely on the investigation wing's report. Thus, the issuance of notice under Section 148 was deemed valid.

2. Issuance of Notice Under Section 143(2):
The assessee argued that no valid notice under Section 143(2) was issued, as the notice dated 30.11.2009 did not conform to the statutory language, failing to call upon the assessee to produce evidence in support of the return. The Tribunal examined the notice and found that it was issued under Section 143(2), as indicated in the subject matter, and requested the assessee to attend the proceedings or produce evidence. Despite minor omissions, the notice was deemed valid under Section 292B, which cures defects if the notice is in substance and effect in conformity with the intent and purpose of the Act. Thus, the notice under Section 143(2) was held valid.

3. Deletion of Addition Made Under Section 68 for Unexplained Credits:
The AO added Rs. 14.45 lakh to the income of the assessee under Section 68, citing unexplained credits. The AO's investigation revealed that the bank accounts of the investors showed contra entries, indicating that these accounts were used for providing accommodation entries. The CIT (Appeals) deleted the addition, accepting the assessee's evidence, including confirmation letters, share application forms, PAN, and bank accounts, and noting that the AO relied on statements from third parties without allowing cross-examination.

The Tribunal, however, referred to the decision in the case of Nova Promoters & Finlease (P.) Ltd., where similar facts involving entry operators Mukesh Gupta and Ranjan Jassal were considered. The Tribunal found that the CIT (Appeals) erred in deleting the addition, as the documentary evidence provided by the assessee did not outweigh the oral evidence of the entry operators. The Tribunal held that the AO had correctly made the addition under Section 68, given the detailed investigation and the pattern of transactions in the bank accounts.

Conclusion:
The Tribunal upheld the validity of the notice issued under Section 148 and Section 143(2) and reversed the CIT (Appeals)'s decision, reinstating the addition of Rs. 14.45 lakh made by the AO under Section 68. The appeal of the revenue was allowed, and the cross-objection of the assessee was dismissed.