2014 (7) TMI 713 - AT - Income Tax

Reassessment u/s 147 r.w 148 Reason to believe - Held that - AO has referred to the information which he received from Directorate of Investigation and as regards the transactions entered into by the assessee with concerns which had made accommodation entries and that they were not genuine transaction - The reason to believe has been properly stated by the AO and there was material basis on which the notice was issued - there was prima-facie evidence before the AO to believe that income has escaped assessment - the order of CIT(A) is upheld Decided against Assessee. Addition u/s 68 of the Act Share application money received Held that - The assessee has produced the documents to prove the identify, genuineness and credit worthiness of the share applicants - the decision in Commissioner of Income-tax Versus Gangeshwari Metal Pvt Ltd. 2013 (1) TMI 624 - DELHI HIGH COURT relied upon - there was a lack of inquiry on the part of the AO once the assessee had furnished all the material the order of the CIT(A) cannot be upheld as the an addition cannot be sustained merely based on inferences drawn by circumstance Decided in favour of Assessee.

Issues Involved:
1. Validity of the reopening of assessment under Section 148 read with Section 147 of the Income Tax Act, 1961.
2. Confirmation of the addition of Rs. 4,00,000 on account of share application money received under Section 68 of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 148 read with Section 147 of the Income Tax Act, 1961:

The appellant challenged the reopening of the assessment, alleging that the Assessing Officer (A.O.) did not have valid jurisdiction and did not serve the mandatory notice under Section 148. The A.O. reopened the case based on investigations by the Directorate of Income Tax, which indicated the appellant received accommodation entries disguised as share application money from two companies. The appellant argued that the reasons for reopening were vague and lacked tangible material, thus failing to establish a cause-and-effect relationship necessary for forming a belief that income had escaped assessment.

The respondent countered that the appellant was informed about the information received and was given adequate opportunities to substantiate its claim but failed to do so. The A.O. conducted inquiries, revealing that the share applicants had substantial cash deposits and immediate cheque issuances, indicating bogus transactions. The respondent cited the jurisdictional High Court's decision in AGR Investment Ltd. vs. Additional Commissioner of Income-tax, which upheld reopening based on specific information about accommodation entries.

The Tribunal found that the A.O. had prima facie evidence to believe that income had escaped assessment, thus justifying the reopening. The Tribunal upheld the order of the CIT(A), dismissing the appellant's ground on this issue.

2. Confirmation of the Addition of Rs. 4,00,000 on Account of Share Application Money Received under Section 68 of the Income Tax Act, 1961:

The appellant contested the addition of Rs. 4,00,000 made by the A.O. under Section 68, arguing that the transactions were genuine and the share applicants were legitimate entities. The appellant provided various documents to substantiate the identity, genuineness, and creditworthiness of the share applicants.

The respondent maintained that the appellant failed to discharge its onus under Section 68, as the share applicants had dubious financial activities, including large cash deposits followed by cheque issuances. The A.O.'s investigation linked the transactions to a firm, M/s Gupta & Gupta, which was untraceable, further casting doubt on the genuineness of the transactions.

The Tribunal noted that the A.O. did not provide specific details linking M/s Gupta & Gupta to the appellant, nor did he conduct thorough inquiries to substantiate his allegations. The Tribunal emphasized that the burden of proof initially lies with the A.O. to show that income had escaped assessment, which was not adequately discharged in this case. The appellant had provided sufficient documents to prove the genuineness of the transactions, and the A.O.'s failure to investigate further led the Tribunal to conclude that the addition under Section 68 could not be sustained.

The Tribunal referred to judicial precedents, including CIT vs. Pradeep Kumar Gupta and CIT vs. Gangeshwari Metal P. Ltd., which highlighted the necessity for the A.O. to conduct meaningful inquiries and not merely rely on presumptions or vague information. The Tribunal found that the A.O.'s approach lacked the required inquiry, making the addition unsustainable.

Conclusion:

The Tribunal allowed the appeal, setting aside the impugned order of the CIT(A). The reopening of the assessment was upheld, but the addition of Rs. 4,00,000 under Section 68 was not sustained due to insufficient inquiry and evidence from the A.O. The Tribunal emphasized the need for concrete evidence and proper investigation to support such additions.

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