2015 (1) TMI 782 - AT - Income Tax

Re-assessment - addition u/s 68 - CIT(A) deleted the addition - Held that - Assessee had placed on record confirmations, income tax returns, bank-statements and share-application forms from each of the share-holders. Summons issued to them, have also been responded to, confirming the investment. However, we find that AO made no further enquiry to discredit the claim of the assessee in this respect. Admittedly,the prior-enquiry made by the investigation wing which triggered the re-assessment, has been made behind the back of the assessee, which does not justify the inference of the AO. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961.
2. Addition of Rs. 9,96,000/- under Section 68 of the Income Tax Act, 1961 on account of unexplained cash credits.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:
The assessee filed a return declaring an income of Rs. 3,519/-. The return was processed under Section 143(1). Subsequently, based on information from the DIT (Investigation), the Assessing Officer (AO) issued a notice under Section 148 on 30.03.2009. The assessee responded by stating that the earlier filed return should be considered in compliance with the notice. The reassessment was challenged, but the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the action of the AO under Section 147. However, this issue was not separately decided by the Tribunal as it became academic following the decision on the main issue.

2. Addition of Rs. 9,96,000/- under Section 68:
The AO made an addition of Rs. 9,96,000/- under Section 68, stating that the share capital remained unconfirmed due to the non-appearance of individuals in response to summons issued under Section 131. The AO concluded that the amount should be added back to the income of the assessee.

The CIT(A) deleted the addition, noting that the assessee had provided substantial evidence, including confirmations, income tax returns, bank statements, share application forms, and other relevant documents from the investors. The CIT(A) observed that the AO did not conduct any independent inquiry and relied solely on the information from the Investigation Wing. The CIT(A) emphasized that the burden of proof was discharged by the assessee and the AO failed to disprove the claim.

Tribunal's Analysis:
The Tribunal upheld the order of the CIT(A), stating that the assessee had provided adequate documentation to substantiate the share application money. The Tribunal noted that the AO did not make further inquiries to discredit the assessee's claim and relied on prior investigations conducted behind the assessee's back.

The Tribunal referred to several judicial precedents:
- CIT vs Fair Finvest Ltd: The Delhi High Court held that the AO should conduct meaningful inquiries and cannot rely solely on investigation reports without examining the evidence provided by the assessee.
- CIT vs Ram Narain Goel: The Punjab and Haryana High Court observed that suspicion cannot replace evidence or proof.
- CIT vs Gangeshwari Metal Pvt. Ltd: The Delhi High Court distinguished between cases where the AO conducts proper inquiries and those where the AO merely rejects evidence without investigation. The Tribunal found the present case to fall in the latter category.

The Tribunal concluded that the AO's lack of inquiry and reliance on presumptions were insufficient grounds for the addition under Section 68. Therefore, the Tribunal dismissed the revenue's appeal and upheld the deletion of the addition by the CIT(A).

Conclusion:
The Tribunal dismissed the revenue's appeal, confirming that the addition of Rs. 9,96,000/- under Section 68 was not justified due to the lack of proper inquiry by the AO. The Tribunal did not separately address the validity of the reassessment proceedings under Section 147, as it became academic after deciding the main issue. The assessee's cross-objection was also rejected for statistical purposes.