2013 (9) TMI 154 - AT - Income Tax

Unaccounted cash credit u/s 68 - Bogus cash credit - Unaccounted commission - Principle of natural justice - Held that - assessee consequent to the assessing officer s queries furnished all the relevant documentary evidence before the assessing officer. From the perusal of record and order-sheets it clearly emerges that the requirement of physical production of the parties was communicated to the assessee as late as on 17-12-2008 as against the date of assessment being 26-12-2008. Similarly, from the entry dated 22-12- 2008 the assessing officer vaguely stated that some summons were issued on some parties, some came unserved and none appeared. The same is sketchy and non-specific - that it will not be easily possible to ask an assessee to accompany him to the proceedings before the assessing officer. In our view, adverse inference drawn on these issues is unjustified - No adverse material was confronted to the assessee by the assessing officer. Thus, the addition cannot be sustained on the ground of canon of natural justice i.e. audi altem partem. The assessing officer set back on his query and merely asking some non-specific sketchy questions at the fag end of the assessment order, it cannot be held that proper inquiries were instituted - Following decision of Commissioner of Income-tax Versus Gangeshwari Metal Pvt Ltd. 2013 (1) TMI 624 - DELHI HIGH COURT - Decided against Revenue.

Summary

Issues Involved:
1. Deletion of additions made by the Assessing Officer under Section 68 of the Income Tax Act.
2. Jurisdiction and limitation of assessment by the Assessing Officer under Section 148 of the Income Tax Act.

Detailed Analysis:

1. Deletion of Additions under Section 68:

The Revenue appealed against the CIT(A)'s decision to delete the addition of Rs. 71,00,000 and Rs. 1,42,000 made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, considering them as bogus cash credits and unaccounted commission for obtaining accommodation entries, respectively. The AO had reopened the assessment based on information from the DIT(Inv.) alleging that the assessee received accommodation entries amounting to Rs. 71 lacs. The assessee provided various documents to prove the identity, genuineness, and creditworthiness of the companies from which the share application money was received, including confirmations, income tax returns, bank statements, board resolutions, and registration certificates. However, the AO rejected the explanation, citing reasons such as the uniform pattern of cash deposits and the failure to produce the directors of the companies.

The CIT(A) deleted the additions, noting that the assessee had furnished all necessary details to establish the identity of the share applicants and their creditworthiness. The CIT(A) relied on several judicial precedents, including CIT vs. Lovely Exports (P) Ltd., CIT vs. Divine Leasing & Finance Ltd., and CIT vs. Value Capital Services Ltd., to conclude that the assessee had discharged its onus under Section 68. The AO's failure to pursue further inquiries or verify the details provided by the assessee was also highlighted.

The Tribunal upheld the CIT(A)'s order, emphasizing that the AO did not conduct proper inquiries or confront the assessee with any adverse material. The Tribunal found merit in the argument that the AO's adverse inference was unjustified due to the lack of specific and timely communication regarding the requirement to produce the directors for verification. The Tribunal also noted that the AO's approach violated the principle of natural justice, as no adverse material was confronted to the assessee.

2. Jurisdiction and Limitation under Section 148:

The assessee raised cross-objections, contending that the assessment was barred by limitation and that the AO lacked jurisdiction to frame the assessment under Section 143(3) read with Section 148 of the Income Tax Act. The assessee argued that the assessment was based on an internal official note without recording reasons as required under Section 148.

However, since the Tribunal upheld the deletion of the additions on merits, it did not delve into the merits of the cross-objections, considering them academic and infructuous. Consequently, the assessee's cross-objections were dismissed.

Conclusion:

The Tribunal dismissed the Revenue's appeal and the assessee's cross-objections, upholding the CIT(A)'s order that deleted the additions made by the AO under Section 68. The Tribunal emphasized the AO's failure to conduct proper inquiries and adhere to the principles of natural justice, thereby justifying the deletion of the additions.