2016 (7) TMI 1182 - AT - Income Tax

Reopening of assessment - undisclosed cash credit - Held that - The information available with Assessing Officer was sufficient to form a primary belief that income had escaped assessment and, therefore, we don t find any infirmity in the finding of the learned Commissioner of Income-tax (Appeals) in dismissing the ground challenging the jurisdiction in reopening the assessment. From the finding of the learned Commissioner of Income-tax(Appeals), it is evident that the assessee was provided enough opportunity to represent its case but, however, no submission was filed before the learned Commissioner of Income-tax(Appeals). In view of non-submission, the learned Commissioner of Income-tax(Appeals) decided the issues on merit and we don t find any infirmity in the findings of the learned Commissioner of Income-tax(Appeals) on the issue in dispute, accordingly, the ground of the appeal is dismissed. Addition u/s 68 - Held that - We find that the assessee has initially provided details in respect of the share applicants to the Assessing Officer, however, when the summons sent to the share applicants written unserved with the postal remarks that no such firms/companies existed on that address and the Assessing Officer asked to produce those parties before him, it was the onus of the assessee to either produce those parties before him or provide their new addresses as in the case of private limited companies, the shares are allotted through private circulation only. The Assessing Officer also observed deposit of cash in the bank account of the share applicant just before issue of cheques to the assessee. The Assessing Officer gathered copy of bank statements of the share applicants directly from the banks through notice under section 133(6) of the Act and pointed out discrepancy in the copy of the bank statement of one of the share applicant supplied by the assessee. The Assessing Officer also observed that the shares issued at higher premium were subsequently bought back by the directors of the assessee company at very low value. In view of all the evidences, the learned Commissioner of Income-tax (Appeals) also upheld the finding of the Assessing Officer. Thus the assessee has failed to discharge its onus in respect of the credit received in the form of share capital by the assessee of ₹ 11 lakh from the parties and, therefore, there is no infirmity in the findings of ld. Commissioner of Income- tax (Appeals) on the issue in dispute and we, accordingly, uphold the findings of the learned Commissioner of Income-tax (Appeals) on this issue. - Decided against assessee Addition on account of notional commission charged the rate of 2% on the accommodation entries obtained - Held that - The assessee obtained accommodation entries in respect of the share capital of ₹ 11 lakh and by the preponderance of probability in the facts of the case no person will provide such entries without any payment, thus, we uphold the unexplained commission expenses paid by the assessee. However, the Assessing Officer has not given any justification for the rate of 2% on the amount of accommodation entry. We therefore in the interest of Justice restore the matter back to the file of the Assessing Officer to apply the rate of commission on the basis of any comparable case. Accordingly, this ground of appeal is allowed partly for statistical purposes.

Issues Involved:
1. Jurisdiction to reopen assessment under Section 147.
2. Consideration of evidence by the Commissioner of Income Tax (Appeals).
3. Addition of ?11,00,000 as unexplained credit under Section 68.
4. Addition of ?22,000 on account of notional commission.
5. Initiation of penalty proceedings under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Jurisdiction to Reopen Assessment under Section 147:
The appellant contested the reopening of the assessment, arguing that the reasons for reopening were based solely on information from the Investigation Wing without independent inquiry by the Assessing Officer (AO). The Tribunal held that the information from the Investigation Wing, which detailed specific transactions, was credible and sufficient for the AO to form a prima facie belief that income had escaped assessment. The Tribunal referenced the Delhi High Court's judgment in Sarthak Securities Company Pvt. Ltd., emphasizing that conclusive proof is not required at the stage of recording reasons to believe. It concluded that the AO's action to reopen the assessment was justified and dismissed the appellant's challenge on this ground.

2. Consideration of Evidence by the Commissioner of Income Tax (Appeals):
The appellant argued that the Commissioner of Income Tax (Appeals) failed to consider the evidence produced during the assessment proceedings. The Tribunal noted that despite multiple opportunities, the appellant did not submit any evidence or arguments before the Commissioner. Consequently, the Commissioner decided the appeal on the merits based on the available records. The Tribunal found no infirmity in the Commissioner's approach and dismissed this ground of appeal.

3. Addition of ?11,00,000 as Unexplained Credit under Section 68:
The appellant claimed to have provided all necessary details, including PAN cards, income tax returns, and bank statements of the share applicants, thereby discharging its initial onus. However, the Tribunal observed that the AO found discrepancies in the bank statements and noted that the share applicants were untraceable at the provided addresses. The AO also pointed out that the shares were later bought back by the directors at a significantly lower value, indicating a circular transaction. The Tribunal upheld the AO's finding that the transactions were camouflaged and that the appellant failed to discharge its onus to prove the genuineness of the transactions. The addition of ?11,00,000 was thus upheld.

4. Addition of ?22,000 on Account of Notional Commission:
The AO added ?22,000 as notional commission at the rate of 2% for obtaining accommodation entries. The appellant argued that this addition was made without evidence and that the rate was arbitrary. The Tribunal upheld the addition, reasoning that it was improbable for accommodation entries to be provided without any commission. However, it remanded the matter back to the AO to determine the rate of commission based on comparable cases, allowing this ground partly for statistical purposes.

5. Initiation of Penalty Proceedings under Section 271(1)(c):
The Tribunal did not provide a detailed analysis of this issue within the judgment. However, it is implied that the initiation of penalty proceedings was upheld in line with the findings on the substantive issues.

Conclusion:
The appeal was partly allowed for statistical purposes, specifically concerning the rate of commission on accommodation entries. The Tribunal upheld the reopening of the assessment, the additions made under Sections 68 and 69C, and the initiation of penalty proceedings.

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