2014 (2) TMI 264 - AT - Income Tax

Whether share application money received is bogus - Held that - The assessee has discharged its onus of establishing the identity and credit-worthiness of SSRCWL - The assessee has submitted certificate of incorporation, commencement of business, memorandum of association, articles of association and annual report of SSRCWL - The AO should have made further inquiries and should have given the copy of statement of Shri Narendra Shah to the assessee along with opportunity to the assessee to cross-examine Shri Narendra Shah - Merely on the basis of statement of a third party, the addition could not be made in the hands of the assessee without allowing opportunity to cross-examine the said person - Decided in favour of assessee.

Summary

Issues involved:
1. Addition of Rs.3,15,000 on account of bogus share application money and charges.
2. Validity of assessment framed under section 147 based on notice under section 148.

Analysis:
1. The appeal focused on the addition of Rs.3,15,000 on account of bogus share application money and charges for the assessment year 2004-05. The assessee contended that the share application money was received through account payee cheques and was reflected in the statement of accounts of another party, M/s.Suryadeep Salt Refinery & Chemical Works Ltd. The assessee provided PAN and TAN numbers of the said party to the Assessing Officer (AO) and requested verification under sections 133(6) and/or 131 of the Act. However, no such verification was conducted by the Revenue. The basis of the addition was a statement from Shri Narendra Shah, which the assessee was not provided for cross-examination. It was argued that the name of the party had changed to M/s.Sapan Chemicals Ltd., supported by a certificate from the Asstt. Registrar of Companies. The Revenue, on the other hand, relied on the report of the ADIT regarding a hawala operator, Shri Narendra Shah, who admitted providing accommodation entries. The AO and CIT(A) supported the Revenue's case, citing relevant legal precedents.

2. The Tribunal found that the assessee had established the identity and credit-worthiness of the party in question. The genuineness of the transaction was upheld as the share application money was paid through account payee cheques, with supporting bank statements and entries in the party's accounts. The assessee had also provided necessary documents to verify the transaction's authenticity. The Tribunal noted that the AO failed to conduct further inquiries or provide the assessee with Shri Narendra Shah's statement for cross-examination. Without corroborative evidence or the opportunity to cross-examine the third party, the Tribunal held that the addition based solely on a third party statement was unjustified. Consequently, the Tribunal allowed the assessee's appeal regarding the addition of bogus share application money and charges.

3. Regarding the validity of the assessment framed under section 147 based on the notice issued under section 148, the Tribunal ruled that since the addition on merits was deleted, there was no need to address the issue of the notice's validity for reopening the case. As a result, the Tribunal did not adjudicate on the grounds related to the validity of the assessment. Ultimately, the Tribunal partly allowed the appeal of the assessee, highlighting the insufficiency of evidence and procedural lapses in the Revenue's case.

This judgment showcases the importance of substantiating transactions, providing opportunities for cross-examination, and ensuring procedural fairness in tax assessments.