2015 (8) TMI 653 - AT - Income Tax

Reassessment under section 148 - accommodation entry of share capital and making additions of amounts - Held that - As the assessee has produced evidences in support of this claim and as the AO has not conducted any investigation nor collected any evidence to controvert the claim of the assessee in our view the additions are bad in law. See Ranbaxy Laboratories Ltd. v. Commissioner of Income-tax 2011 (6) TMI 4 - DELHI HIGH COURT , CIT v. Living Media India Ltd. 2013 (6) TMI 128 - DELHI HIGH COURT ,Jay Bharat Maruti Ltd. v. CIT 2009 (4) TMI 12 - DELHI HIGH COURT , Vipan Khanna v. CIT 2000 (7) TMI 2 - PUNJAB AND HARYANA High Court and Travancore Cements Ltd vs ACIT 2006 (9) TMI 174 - KERALA HIGH COURT and CIT vs. Lovely Exports 2008 (1) TMI 575 - SUPREME COURT OF INDIA .Thus we allow the appeal of the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment under Section 148 of the Income Tax Act.
2. Merits of the addition of Rs. 2,14,27,400.
3. Admissibility and evidentiary value of statements and documents.
4. Jurisdiction and procedural correctness of the lower authorities' orders.

Issue-wise Detailed Analysis:

1. Validity of Reassessment under Section 148:

The primary issue was whether the reopening of the assessment under Section 148 was valid. The reasons recorded by the Assessing Officer (AO) for reopening were based on information from the Investigation Wing, which suggested that the assessee was a beneficiary of accommodation entries from entry operators. The AO claimed to have perused the report and evidence, concluding that the assessee received unexplained sums amounting to Rs. 20,00,000. However, the Tribunal found that the AO did not refer to any tangible material or conduct independent verification. The reasons recorded were vague and unsubstantiated, lacking any corroborative evidence such as statements or bank account details. Citing various case laws, including CIT vs. Kelvinator of India Ltd. and Madhukar Khosla vs. ACIT, the Tribunal held that the reopening was invalid as it was not based on new, tangible material and amounted to an impermissible review.

2. Merits of the Addition of Rs. 2,14,27,400:

On the merits, the Tribunal noted that the assessee had provided substantial evidence, including confirmation letters, IT returns, bank statements, and audit reports, to support the share capital and loans received. The AO, however, did not conduct any investigation or provide specific reasons for rejecting the evidence. The Tribunal emphasized that the AO merely relied on the Investigation Wing's report without any independent application of mind. The Tribunal cited the case of CIT vs. Gangeshwari Metal P. Ltd., highlighting that the AO's lack of inquiry and reliance on presumptions rendered the additions unsustainable. The Tribunal concluded that the additions were bad in law and should be deleted.

3. Admissibility and Evidentiary Value of Statements and Documents:

The Tribunal addressed the issue of the evidentiary value of statements recorded during surveys and other documents. The assessee argued that the statement of Shri S.K. Gupta, relied upon by the AO, did not mention the assessee's name and was not corroborated by any material evidence. Furthermore, the statement was recorded without providing the assessee an opportunity for cross-examination. The Tribunal held that statements recorded during surveys have limited evidentiary value and cannot be solely relied upon without corroborative evidence. The Tribunal found that the AO failed to provide any substantial evidence to support the additions, making the reliance on such statements unjustifiable.

4. Jurisdiction and Procedural Correctness of the Lower Authorities' Orders:

The Tribunal examined whether the AO was justified in making additions beyond the reasons recorded for reopening the assessment. It was found that the AO had made additional arbitrary additions without recording proper reasons or having tangible material. The Tribunal referred to the case of Ranbaxy Laboratories Ltd. vs. CIT, which established that any new issue discovered during reassessment requires a fresh notice under Section 148. The Tribunal concluded that the AO's actions were procedurally incorrect and beyond jurisdiction, rendering the lower authorities' orders illegal and arbitrary.

Conclusion:

The Tribunal allowed the appeal, holding that the reopening of the assessment was invalid due to lack of tangible material and independent verification by the AO. The additions made were found to be arbitrary and unsupported by evidence, and the procedural actions of the AO were deemed incorrect. Consequently, the Tribunal ordered the deletion of the additions and upheld the assessee's contentions.