2018 (5) TMI 1582 - AT - Income Tax

Revision u/s 263 - Addition u/s 68 towards share application money - AO had not enquired into the source of the share capital and premium infused into the assessee company by verifying the identity, genuineness and creditworthiness of the shareholders - Held that - AO admittedly did not resort to make enquiries in the manner stated by the CIT u/s 263 inspite of the fact that all the necessary details were very much available before him. CIT had directed the AO to investigate into multiple layers of the investment in shares made by respective shareholders and identify the ultimate person holding controlling interest including the change in shareholding, directorship etc and then take the entire matter to its logical conclusion to bring out the facts on record. From the perusal of the assessment order, we find that this has not been done by the AO. Thus remand the matter back to the file of the ld AO for de novo assessment and to decide the matter as mandated by the ld CIT in section 263 order, after giving sufficient opportunity of being heard to the assessee. Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Justification of the addition made under Section 68 of the Income Tax Act towards share application money.
2. Enhancement of the addition by the Commissioner of Income Tax (Appeals) [CIT(A)].
3. Adequacy of the opportunity provided to the assessee for presenting its case.
4. Validity of the assessment order passed under Section 144 of the Act.
5. Charging of interest under Sections 234A, 234B, 234C, and 234D of the Act.

Issue-wise Detailed Analysis:

1. Justification of the Addition under Section 68:
The main issue in this appeal was whether the CIT(A) was justified in upholding the addition made under Section 68 of the Income Tax Act towards share application money amounting to ?3,68,00,000 and further enhancing it to ?3,69,01,543. The assessee, an investment company, had its assessment reopened and revised under Section 263 of the Act due to inadequate inquiry by the Assessing Officer (AO) regarding the genuineness and source of the share application money, as well as the identity and creditworthiness of the shareholders. The AO observed that the transactions were not genuine since the assessee failed to produce the directors and shareholders for verification.

2. Enhancement of the Addition by CIT(A):
The CIT(A) enhanced the addition from ?3,68,00,000 to ?3,69,01,543, stating that the share capital remained unexplained due to the non-appearance of the directors to explain the business prudence of the investments and their credentials. This enhancement was based on the failure of the directors to attend personally and provide necessary explanations, thus treating the share capital as unexplained cash credit under Section 68 of the Act.

3. Adequacy of Opportunity Provided to the Assessee:
The assessee argued that it was not given a proper opportunity to present its case due to an incomplete address mentioned in the notices, which led to the non-receipt of notices and subsequent non-appearance. The assessee relied on the Supreme Court decision in Tin Box Company vs CIT, which emphasized that an assessment order must be made after providing the assessee a reasonable opportunity of being heard. The Tribunal noted that the AO did not follow the specific guidelines provided by the CIT under Section 263 for a thorough investigation, which included independent verification of each shareholder's identity and creditworthiness.

4. Validity of the Assessment Order under Section 144:
The Tribunal found that the assessment order was passed under Section 144 of the Act due to non-cooperation by the assessee. However, it was noted that the non-service of notice was due to an incomplete address, which was not the fault of the assessee. The Tribunal emphasized that the AO did not conduct the required in-depth inquiries as mandated by the CIT under Section 263, thus failing to establish the genuineness of the transactions and the creditworthiness of the shareholders.

5. Charging of Interest under Sections 234A, 234B, 234C, and 234D:
The issue of charging interest under Sections 234A, 234B, 234C, and 234D was deemed consequential. The Tribunal directed the AO to recompute the interest as per the law, following the fresh assessment.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, remanding the matter back to the AO for a de novo assessment. The AO was instructed to follow the specific guidelines provided by the CIT under Section 263, ensuring a thorough investigation and providing the assessee with a proper opportunity to present its case. The Tribunal emphasized the necessity of conducting detailed scrutiny to verify the identity, genuineness, and creditworthiness of the shareholders, in line with the principles laid down in the cited judicial precedents.

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