2019 (1) TMI 1818 - AT - Income Tax

Addition u/s 68 - Unexplained Share Premium - HELD THAT - In response to a query raised by the AO during the course of assessment proceedings, the authorized representative of the assessee-company filed a reply vide letter dated 25.03.2015 stating inter alia that reasonable opportunity be given to examine the documents on the basis of which allegation has been made; cross-examine the parties which is alleged to be bogus etc. Also in the cross objection the assessee has stated that the AO did not make available to the respondent of the materials based on which such addition is made, despite the request of the respondent during assessment. Also it has been stated in the cross objection filed by the assessee that the AO did not grant cross-examination of the parties to the respondent, despite the request of the respondent during assessment. We set aside the order of the CIT(A) and restore the matter to the file of the AO to make a de novo order after examining the aforesaid parties and allowing the assessee opportunity to cross-examine them. We direct the assessee to file the relevant documents/evidence before the AO.

Summary

Issues:
1. Addition of ?4,35,00,000 under section 68 of the Income Tax Act - Unexplained Share Premium.
2. Failure to grant inspection and cross-examination rights to the assessee during assessment.

Issue 1: Addition of ?4,35,00,000 under section 68 of the Income Tax Act - Unexplained Share Premium:

The case involved an appeal by the Revenue against the CIT(A)'s order deleting the addition of ?4,35,00,000 under section 68 of the Income Tax Act related to Unexplained Share Premium. The AO had raised concerns about the genuineness of the share premium amount and the creditworthiness of the companies involved, managed by an individual named Shri Shirish C. Shah. The AO noted that Shri Shah admitted to managing various companies used for providing accommodation entries. The CIT(A) ruled in favor of the assessee, stating that they had established the identity, creditworthiness, and genuineness of the share application money through various documents. The CIT(A) found no link between Shri Shah and the investors of the assessee-company, leading to the deletion of the addition.

Issue 2: Failure to grant inspection and cross-examination rights to the assessee during assessment:

The assessee raised objections regarding the AO's failure to provide access to materials used for the addition and the denial of cross-examination rights during the assessment. The assessee argued for the importance of fair opportunity and cross-examination as essential elements of natural justice. Citing legal precedents, the assessee emphasized the right to know the case made against them and the right to cross-examine witnesses. The Tribunal found that the CIT(A) had overlooked the significance of cross-examination in the case. Consequently, the Tribunal set aside the CIT(A)'s order and directed the AO to conduct a fresh assessment, allowing the assessee the opportunity to cross-examine relevant parties and present necessary evidence.

In conclusion, the Tribunal allowed the Revenue's appeal for statistical purposes and partly allowed the cross objections filed by the assessee. The matter was remanded to the AO for a fresh assessment, emphasizing the importance of providing a fair opportunity for cross-examination and hearing before finalizing the order.