2018 (10) TMI 1974 - AT - Income Tax

Validity of issuance of notice u/s 148 - basic conditions enshrined in section 147 are not complied with - HELD THAT - Even in the reasons recorded by the Ld. Assessing Officer, neither he recorded any satisfaction nor made any allegations to the effect that there was a failure on the part of the assessee to disclose the material facts fully and truly. Thus, it can be concluded that so far as Assessment Year 2007-08 and 2008-09 are concerned, the reassessment proceedings are beyond four years (as admitted by Ld. Sr. Standing Counsel also), therefore, merely on the basis of change of opinion, reassessment is not permissible. Since, we have held the reassessment proceeding under section 148 to be invalid, there is no need to go into the merits, still and we deem it appropriate to examine the issues in hand on merits also. Penalty u/s 271(1)(c) - Defective notice u/s 274 - Whether the proceedings are initiated on the ground of concealment of income or on account of furnishing of inaccurate particulars is valid and legal? - HELD THAT - Satisfaction need not be recorded in a particular manner but from a reading of the assessment order as a whole such satisfaction should be clearly discernible. Therefore, the reliance by the Ld. Departmental Representative on the decision of Mak Data Pvt. Ltd. 2013 (11) TMI 14 - SUPREME COURT in our opinion is misplaced and not applicable to the facts of the present case. This view of ours finds support from the decision of Kolkata Bench of the Tribunal in the case of Suvaprasanna Bhataacharya 2015 (12) TMI 43 - ITAT KOLKATA for A.Y. 2006-07. In this view of the matter, we are of the considered opinion that since it is not clear from the notice u/s. 274 the reasons for levying of penalty as to whether it is for concealment of income or for furnishing of inaccurate particulars of income, therefore, the notice itself is bad in law and invalid. Therefore, the penalty order passed subsequently on the basis of such invalid notice also has to be held as bad in law. We accordingly cancel the penalty levied by the AO . In the instant cases before us the Assessing Officer had not made up his mind as to the specific charge to which the assessee was to be penalized. In the premises, as has been held in the rulings discussed hereinabove, the levy of penalty u/s. 271(1)(c) of the Act was not justified. Accordingly on this legal ground we delete the penalty in all the years under consideration. Addition u/s 68 - assessee has borrowed money by way of loan - case of the assessee was re-opened upon receiving the and other three appeals information from DGIT(Inv), Mumbai that the assessee was one of the beneficiary of the said accommodation entries provided by Mr. Bhanwarlal Jain and group - HELD THAT - The assessee had established the identity of the creditors. The assessee had also shown, in accordance with the burden, which rested on him, under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors which was not in dispute. Once the assessee had established these, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter, the burden had shifted and other three appeals to the Assessing Office to prove the contrary. The failure on the part of the creditors to show that their Sub-creditors had creditworthiness to advance the said loan amounts to the assessee, could not, under the law be treated as the income by the appellant from undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness from undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or where owned by, the assessee. The Assessing Officer failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. Therefore, the Assessing Officer could not have treated the said amounts as income derived by the assessee from undisclosed sources - As in the case of Accommodation entry - without giving an opportunity of cross examination merely on the basis of oral statement additions cannot be made u/s. 68. Estimation of income - Addition of bogus purchases - HELD THAT - Assessing Officer as well as the Commissioner of Income-tax (Appeals) have disallowed the deduction of Rs. 1.33 crores on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. We find that the order of the Tribunal is well a reasoned order taking into account all the facts before concluding that the purchases of Rs. 1.33 crores was not bogus. No fault can be found with the order dated April 30, 2010, of the Tribunal. Thus, considering the facts available on record, we find force in the argument of the Ld. counsel for the assessee. The crux of the arguments is that the profit margin earned by the assessee is somewhere between 0.26% to 0.30% as the purchases and sales are genuine, thus, the addition may be restricted to 0.30%. Though, we find force in the argument of the ld. counsel for the assessee as the same is based upon the facts, still to plug the leakage of Revenue and to safeguard the interest of the Revenue, we deem it appropriate to restrict the profit margin at the rate of 3% against 12.5% sustained by the Ld. Commissioner of Income Tax (Appeal), thus, the impugned ground is partly allowed.

Summary

Issues Involved:
1. Unexplained credits in the books of accounts.
2. Validity of assessment framed under Section 153C of the Income Tax Act.
3. Genuineness of the share application money received.
4. Burden of proof regarding the identity, creditworthiness, and genuineness of the transactions.
5. Statements of third parties and their evidentiary value.
6. Commission allegedly paid on transactions.
7. Bogus purchases and their tax implications.

Issue-wise Detailed Analysis:

1. Unexplained Credits in the Books of Accounts:
The assessee offered Rs. 13.15 Crores as unexplained credits received as share capital from five parties for the assessment year (A.Y.) 2009-10. The details of these parties were provided, including their names and the amounts received. The assessee submitted various documents to the Assessing Officer (AO) to explain the source and nature of these credits, including confirmations from the shareholders, bank statements, and financial statements. Despite these submissions, the AO was not satisfied and made additions under Section 68 of the Income Tax Act, treating the share capital as unexplained income.

2. Validity of Assessment Framed Under Section 153C:
The assessee challenged the legality of the assessment framed under Section 153C, arguing that no satisfaction was recorded by the AO of the searched person (Jogia Properties Ltd.) to justify the proceedings against the assessee. The CIT(A) dismissed this legal ground, but the Tribunal found that the AO did not record the necessary satisfaction, making the notice under Section 153C invalid. This was supported by the inspection report which showed no recording of satisfaction for initiating proceedings under Section 153C against the seven companies.

3. Genuineness of the Share Application Money Received:
The assessee argued that the share application money was genuine, supported by documents such as PAN, bank statements, and confirmations from the shareholders. The CIT(A) and Tribunal found that the assessee had discharged its burden by providing sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions. The Tribunal noted that no incriminating documents were found during the search to prove that the share application money was received in lieu of cash.

4. Burden of Proof Regarding the Identity, Creditworthiness, and Genuineness of the Transactions:
The Tribunal emphasized that the burden of proof lies on the assessee to establish the identity, creditworthiness, and genuineness of the transactions. The assessee provided PAN, bank details, and confirmations from the shareholders, which were deemed sufficient to discharge this burden. The AO's objections were found to be based on suspicion rather than concrete evidence.

5. Statements of Third Parties and Their Evidentiary Value:
The AO relied on the statements of third parties, including Mr. Jose Mathew and Mr. Mukesh Choksi, to support the additions. However, these statements were retracted, and the Tribunal held that such statements, without corroborative evidence, could not be used against the assessee. The Tribunal noted that the statements were recorded under coercion and lacked credibility.

6. Commission Allegedly Paid on Transactions:
The AO assumed that the assessee paid a commission of 3% on the transactions, leading to an additional income of Rs. 15.50 Crores. The Tribunal found no evidence to support this assumption and held that real income could only be taxed. The addition based on presumptive commission was deleted.

7. Bogus Purchases and Their Tax Implications:
The AO made additions for bogus purchases, which were partly sustained by the CIT(A) at 12.5% of the purchase value. The Tribunal noted that the purchases were supported by invoices, payments were made through cheques, and the goods were sold, generating profit. The Tribunal reduced the addition to 3% of the purchase value, considering the facts and to safeguard the revenue.

Conclusion:
The Tribunal's judgment emphasized the importance of concrete evidence over suspicion, the necessity of following due process, and the requirement for the AO to record satisfaction before initiating proceedings under Section 153C. The assessee's documentation and evidence were found sufficient to discharge the burden of proof regarding the genuineness of the transactions. Additions based on assumptions and retracted statements were deleted, and the assessment under Section 153C was held invalid due to the lack of recorded satisfaction.