2018 (8) TMI 1761 - AT - Income Tax

Unexplained cash credit u/s 68 - Held that - There is no dispute that the entire share capital has been accepted as bogus by the assessee itself. It would not be out of place to mention that the assessee itself has accepted this before the Settlement Commission in its petition. There is no dispute that the petition of the assessee was dismissed by the Settlement Commission as the assessee could not pay tax as per the provisions of law. The fact of the matter is that the assessee has admitted that the share capital is bogus. Whether the assessee is entitled for benefit of rotation of cash thereby restricting the addition to the extent of peak credit? - Held that - No doubt, the assessee in its explanation has time and again stated that it has inflated the cost of land/building/plant and machinery/expenditure. It is also not in dispute that the assessee has time and again contended that by inflating the assessee has rotated cash back in its books of account, therefore, bogus share capital introduced through accommodation entries taken from the brokers. But the most important fact is that the assessee could not adduce a single piece of evidence to demonstrate that the money has been circulated and reintroduced in the books of account. The assessee could not demonstrate any nexus between the inflation of items mentioned elsewhere and reintroducing the cash generated from such inflation. Forget about the direct evidences, there is not even a single circumstantial evidence to substantiate the claim of the assessee. The first appellate authority, in his wisdom, blindly accepted the theory of the assessee without asking for /looking for any evidence in support of the claim of peak credit theory. Since the assessee could not adduce any evidence, the benefit of peak credit cannot be given to the assessee. The first appellate authority has grossly erred in giving benefit and, therefore, his finding deserves to be set aside. We accordingly set aside the order of the CIT(A) to this extent and restore that of the Assessing Officer. Appeal filed by the Revenue is, accordingly, allowed. Addition of loan - The loan taken during the year under consideration appears to have been repaid in the subsequent years as can be seen from the bank accounts exhibited in the paper book. In our considered opinion and in the interest of just and fair play, we restore this issue to the file of the Assessing Officer. The assessee is directed to furnish bank statement for verification. The Assessing Officer is directed to examine the bank statement and decide the issue afresh. The assessee is also directed to furnish PAN details of all the five parties from whom unsecured loans have been taken. Needless to mention, the Assessing Officer shall give reasonable and proper opportunity of being heard to the assessee. Addition of ₹ 44.40 lakhs is concerned, we find that the same was not made by the Assessing Officer but was made by the CIT(A). There is no doubt that the powers of the CIT(A) are co-terminous to that of the Assessing Officer, but at the same time, the CIT(A) cannot enhance an assessment unless the assessee has had reasonable opportunity of showing cause as per provisions of section 251(2) of the Act. In our considered opinion, any act of the first appellate authority done in violation of provisions of section 251(2) of the Act would make his order a nullity. We, accordingly, direct the Assessing Officer to delete the addition of ₹ 44.40 lakhs. Appeal of the assessee is allowed in part for statistical purposes.

Issues Involved:
1. Addition of ?78,05,370/-.
2. Addition of ?5.27 crores on account of bogus share capital.
3. Addition of ?65 lakhs as unexplained cash credit.
4. Addition of ?44.40 lakhs as 5% commission for arranging bogus bills and share capital.

Issue-wise Detailed Analysis:

1. Addition of ?78,05,370/-:
The assessee's grievance relates to the addition of ?78,05,370/-. However, the judgment primarily focuses on larger sums and broader issues of bogus share capital and unexplained cash credits. The specific details of this addition are not extensively discussed in the judgment.

2. Addition of ?5.27 crores on account of bogus share capital:
The case involves a search and seizure operation at the assessee's business premises, leading to the issuance of notices under section 153A of the Income-tax Act, 1961. The assessee declared a total income of ?7,13,983/- but failed to comply with subsequent notices. The Settlement Commission declared the assessee's application invalid due to non-payment of tax. The Assessing Officer scrutinized seized documents and found that multiple entities applied for shares, but their directors/partners admitted to being name lenders on commission basis. Consequently, the Assessing Officer treated ?1.55 crores as bogus share application money. The assessee admitted to inflating costs to obtain loans and argued for the addition of only the peak credit. The CIT(A) accepted this theory and restricted the addition to ?1,40,05,370/-, deleting ?4,48,94,630/-. However, the Tribunal found no evidence supporting the rotation of money and set aside the CIT(A)'s order, restoring the Assessing Officer's addition of ?5.27 crores.

3. Addition of ?65 lakhs as unexplained cash credit:
The Assessing Officer noticed unsecured loans from five parties totaling ?65 lakhs and treated them as unexplained cash credits under section 68 of the Act due to lack of plausible explanation. The CIT(A) upheld this addition. On appeal, the assessee argued that the loans were repaid in subsequent years and provided bank statements as evidence. The Tribunal found merit in this argument and restored the issue to the Assessing Officer for fresh examination, directing the assessee to furnish bank statements and PAN details of the loan parties.

4. Addition of ?44.40 lakhs as 5% commission for arranging bogus bills and share capital:
The CIT(A) added ?44.40 lakhs, being 5% commission for arranging bogus bills and share capital, which was not initially made by the Assessing Officer. The Tribunal noted that while the CIT(A) has co-terminous powers with the Assessing Officer, any enhancement of assessment without reasonable opportunity for the assessee to show cause violates section 251(2) of the Act. Consequently, the Tribunal directed the deletion of the ?44.40 lakhs addition.

Conclusion:
The appeal filed by the Revenue is allowed, restoring the Assessing Officer's addition of ?5.27 crores. The assessee's appeal is partly allowed for statistical purposes, with the issue of ?65 lakhs unexplained cash credit restored to the Assessing Officer for fresh examination, and the addition of ?44.40 lakhs as commission deleted. The judgment emphasizes the necessity of evidence and proper procedural adherence in tax assessments.

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