2017 (4) TMI 456 - AT - Income Tax

Addition u/s 68 - unexplained credits - Held that - AO emphasized on the Report of the Investigation Wing of the Income Tax Department about the accommodation entries and believing on the same the AO held that the creditworthiness, identity, genuineness of the transaction could not be proved by the assessee and accordingly, the amount of ₹ 10,01,000/- was treated as unexplained credits as per the provisions of section 68 of the I.T. Act, 1961 and added the same in the hands of the assessee, which establish that AO has not appreciated and corroborated the evidences as filed by the assessee and passed a non-speaking order, which is not sustainable in the eyes of law, which needs to be set aside. However, on the other hand, Ld. CIT(A) has passed a detailed order and upheld the addition made by the AO, but Ld. CIT(A) has not at all appreciated the facts and circumstances of the case as discussed by the AO in the assessment order. We further find that Ld. CIT(A) also not obtained any Remand Report from the AO which is very much essential before adjudicating upon the issue in dispute. We are of the considered view that AO has passed a non-speaking order and Ld. CIT(A) has passed a detailed order and upheld the action of the AO, without discussing and appreciating the facts of the case as narrated by the AO in the assessment order. Therefore, in the interest of justice, we cancel both the orders of the revenue authorities and set aside the issues in dispute raised in grounds of appeal to decide the same afresh

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer under section 147/143(3) of the Income Tax Act, 1961.
2. Validity of proceedings initiated under section 147 without "reason to believe."
3. Addition made under section 68 of the Income Tax Act, 1961.
4. Penalty proceedings initiated under section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer under section 147/143(3) of the Income Tax Act, 1961:
The assessee contended that the order passed by the Assessing Officer (AO) under section 147/143(3) was beyond jurisdiction, bad in law, and void-ab-initio. The AO initiated proceedings based on information from the Directorate of Income Tax (Investigation) that the assessee had received accommodation entries amounting to ?10,01,000. The AO observed that the assessee had ploughed back unaccounted money into its business through these entries. The Tribunal noted that the AO did not corroborate the documentary evidence provided by the assessee and passed a non-speaking order. The Tribunal set aside the AO's order for being non-speaking and directed a fresh assessment.

2. Validity of proceedings initiated under section 147 without "reason to believe":
The assessee argued that the AO initiated proceedings under section 147 without forming any "reason to believe" that income had escaped assessment and without satisfying other conditions precedent. The AO relied solely on information from the Investigation Wing without independent application of mind. The Tribunal found that the AO had not adequately discussed or corroborated the documentary evidence provided by the assessee, thereby failing to establish a valid "reason to believe." The Tribunal set aside the AO's order and directed a fresh assessment.

3. Addition made under section 68 of the Income Tax Act, 1961:
The AO added ?10,01,000 to the assessee’s income under section 68, treating it as unexplained credits. The assessee provided various documents, including share application forms, board meeting minutes, and financial statements, to substantiate the transactions. However, the AO and the CIT(A) dismissed these documents, relying on the Investigation Wing's report. The Tribunal noted that the AO did not consider the documentary evidence provided by the assessee and passed a non-speaking order. The Tribunal set aside the AO's and CIT(A)'s orders and directed a fresh assessment, emphasizing the need to verify the documentary evidence.

4. Penalty proceedings initiated under section 271(1)(c) of the Income Tax Act, 1961:
The assessee requested the deletion of penalty proceedings initiated under section 271(1)(c). The AO had initiated these proceedings on the grounds of concealment of income and furnishing inaccurate particulars. The Tribunal did not specifically address the penalty proceedings in detail but set aside the AO's order for a fresh assessment, which implicitly includes reconsideration of the penalty proceedings.

Conclusion:
The Tribunal found that the AO had passed a non-speaking order without adequately considering the documentary evidence provided by the assessee. The CIT(A) upheld the AO's decision without obtaining a remand report or appreciating the facts. Consequently, the Tribunal set aside both orders and directed a fresh assessment, ensuring that the AO verifies the documentary evidence and passes a detailed and speaking order in accordance with the law. The appeal filed by the assessee was allowed for statistical purposes.