2017 (9) TMI 367 - AT - Income Tax

Assessment u/s 153A - no search u/s 132 - Held that - Assessing Officer wrongly assumed jurisdiction u/s 153A of the Act without there being any initiation of search on the assessee u/s 132 of the Act. Resultantly, all the proceedings flowing from such invalid notice u/s 153A, including the passing of the assessment order, have been quashed. Addition u/s 68 - genuineness of the transaction - Held that - Mere fact that the assessee placed on record bank statements, confirmations, certificates of incorporation, memorandums of association, etc. of the companies who allegedly invested in the assessee s shares at a huge premium, does not in itself justify the genuineness of the transaction. Apart from the paper trail, the assessee is supposed to satisfy the Assessing Officer about the genuineness of the transaction. It can be seen that the ld. CIT(A) has deleted the addition to the tune of ₹ 15 lac being the amount received as share capital with share premium for M/s Startrans Logistics Pvt. Ltd., simply on the ground that the letter sent to this party was not returned by Postal Department. This, in our considered opinion, is hardly sufficient enough to prove the necessary ingredients u/s 68 of the Act. The impugned order cannot be countenanced. Considering the totality of facts and circumstances of the instant case, we are of the considered opinion that the ends of justice would meet adequately if the impugned order is set aside and the addition of ₹ 75 lac is restored to the file of Assessing Officer for a fresh adjudication. The ld. AR, in all fairness, candidly accepted the course of restoration to the AO for a fresh decision as per law. Unexplained share capital along with share premium - Held that - When complete information was not admittedly submitted before the Assessing Officer, how he could have proceeded to examine the genuineness of the depositors, is anybody s guess. In our considered opinion, the impugned order deleting the addition cannot be affirmed. Considering the totality of facts and circumstances of the instant case, we are of the considered opinion that the ends of justice would meet adequately if the impugned order is set aside and the matter is restored to the file of Assessing Officer. We order accordingly and direct the de novo consideration of the issue at the Assessing Officer s end in respect of receipt of share capital and share premium amounting to ₹ 40 lac.

Issues Involved:
1. Assumption of jurisdiction by the Assessing Officer (AO) to initiate proceedings u/s 153A.
2. Validity of additions made by the AO on account of unexplained share capital and share premium.
3. Powers of the CIT(A) in restoring matters to the AO for fresh adjudication.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction by the AO to Initiate Proceedings u/s 153A:
For the assessment years 2005-06 to 2008-09, the assessee challenged the AO's jurisdiction to issue notices u/s 153A and the consequential framing of assessments. The Tribunal noted that a similar issue was raised for the assessment year 2004-05, where it was held that the AO wrongly assumed jurisdiction u/s 153A without any initiation of search u/s 132. Consequently, the proceedings flowing from such invalid notice u/s 153A, including the passing of the assessment order, were quashed. Given that the facts and legal position for the years under consideration were similar to those for the A.Y. 2004-05, the Tribunal held that the assumption of jurisdiction u/s 153A for these years was not valid, and the assessments framed for these years were quashed. As a result, the appeals of the Revenue were dismissed, and those of the assessee were allowed.

2. Validity of Additions Made by the AO on Account of Unexplained Share Capital and Share Premium:
- Assessment Year 2009-10:
The assessee received share capital and premium from four parties. The AO observed that the investor companies had shown only nominal income compared to the investments made, and no details were submitted to prove the creditworthiness of some investors. The AO concluded that the assessee brought in its own unaccounted funds through share capital and premium, treating ?75 lakh as unexplained and adding it to the assessee’s total income u/s 68. During the first appellate proceedings, the CIT(A) directed the AO to make necessary inquiries. The AO's report indicated that letters sent to three companies were returned with remarks 'No such firm at such address,' and no reply was received from the fourth company. The CIT(A) held that ?15 lakh was genuinely received from one company but directed the AO to verify the investments from the other two companies. The Tribunal noted that the CIT(A) cannot restore the matter to the AO for fresh adjudication and set aside the impugned order, restoring the addition of ?75 lakh to the AO for fresh adjudication.

- Assessment Year 2010-11:
The AO added ?40 lakh to the assessee’s total income u/s 68, observing that the investor companies had shown nominal income compared to the investments made and no details were submitted to prove the creditworthiness of one investor. The CIT(A) deleted this addition, noting that the AO did not conduct an independent inquiry despite the details filed by the assessee. The Tribunal found that the CIT(A) relied on certain fresh documents not before the AO and noted that the genuineness of transactions cannot be established merely by proper paperwork. The Tribunal set aside the impugned order and directed a de novo consideration of the issue by the AO.

3. Powers of the CIT(A) in Restoring Matters to the AO for Fresh Adjudication:
The Tribunal clarified that the CIT(A) does not have the power to restore matters to the AO for a fresh decision. Section 251 of the Act lists the powers of the CIT(A), which include confirming, reducing, enhancing, or annulling the assessment but not restoring it to the AO. Hence, the CIT(A)'s decision to restore the issue to the AO for fresh adjudication was not upheld.

Conclusion:
The Tribunal quashed the assessments for the years 2005-06 to 2008-09 due to invalid jurisdiction assumed by the AO u/s 153A. For the years 2009-10 and 2010-11, the Tribunal set aside the CIT(A)'s orders and restored the matters to the AO for fresh adjudication regarding the additions made on account of unexplained share capital and premium. The Tribunal emphasized the need for the AO to conduct a thorough inquiry to establish the genuineness of transactions and the creditworthiness of investors.

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