2018 (6) TMI 1330 - AT - Income Tax

Reopening of assessment - Unexplained cash credit u/s 68 - Held that - In the instant case no enquiries which have been confronted to the appellant despite specific request and as such, there is no material which could enable the learned Assessing Officer to form an opinion that income of assessee has escaped assessment so as to allege that share capital represented accommodation entries. As there is no tangible material and therefore, action under section 148 of the Act is invalid. Even on merits, it is noted that the issue is squarely covered by order of the Tribunal in the case of ACIT vs. M/s. Kapis Impex Pvt. Ltd 2018 (3) TMI 1607 - ITAT DELHI . The findings of the CIT(A) remain unrebutted and the conclusion of the CIT(A) to delete the addition by holding that once shareholders do exist, have their own independent identity, source of income, maintain books of accounts, carry on their business and earn income from investments not only in assessee but also shares of other companies, then the inevitable conclusion is that they are not paper companies is upheld and the addition in dispute is deleted - Decided in favour of assessee.

Issues Involved:
1. Deletion of ?40,00,000/- addition made by AO on account of unexplained cash credit u/s 68 of the I.T. Act, 1961.
2. Validity of assessment order passed u/s 147 r.w.s 143(3) as void ab-initio.
3. Failure of the assessee to discharge the onus u/s 68 of the I.T. Act, 1961 to prove identity, creditworthiness, and genuineness of transactions.
4. General errors in the order of the CIT(A).

Issue-wise Detailed Analysis:

1. Deletion of ?40,00,000/- Addition Made by AO:
The Tribunal upheld the CIT(A)'s order deleting the addition of ?40,00,000/- made by the AO under section 68 of the I.T. Act, 1961, for unexplained cash credits. The Tribunal noted that the assessee had provided substantial documentary evidence to prove the identity, creditworthiness, and genuineness of the transactions. These included confirmations, bank statements, PAN cards, financial statements, and returns filed by the shareholders. The AO did not make any inquiries to contradict these documents, nor did he confront the assessee with any adverse material. The Tribunal also emphasized that the statements of Praveen Kumar Aggarwal, relied upon by the AO, were not recorded during the assessment stage and were not subjected to cross-examination, thus violating the principles of natural justice.

2. Validity of Assessment Order Passed u/s 147 r.w.s 143(3):
The Tribunal confirmed the CIT(A)'s decision that the reopening of the assessment was invalid. The reasons recorded by the AO for reopening were found to be vague, general, and not based on any specific incriminating material. The Tribunal cited several judgments, including Pr. CIT v. G&G Pharma India Ltd., Sarthak Securities Co. (P) Ltd. v. ITO, and Signature Hotels (P) Ltd. v. ITO, to support the view that mere information from the Investigation Wing without independent application of mind by the AO does not constitute tangible material for reopening an assessment. The Tribunal also noted that the approval for issuing the notice u/s 148 was obtained in a mechanical manner, without proper application of mind by the approving authority.

3. Failure to Discharge Onus u/s 68:
On the merits, the Tribunal found that the assessee had indeed discharged its onus under section 68 by providing comprehensive documentary evidence to prove the identity, creditworthiness, and genuineness of the shareholders. The Tribunal highlighted that the AO did not conduct any inquiries to verify these documents and merely relied on unsubstantiated statements. The Tribunal reiterated that the initial burden of proof lies with the assessee, which had been adequately discharged in this case. The Tribunal also referenced the Supreme Court's judgment in CIT v. Lovely Exports (P) Ltd., which held that the Department is free to proceed against the shareholders individually if they are found to be bogus, but the share capital cannot be treated as undisclosed income of the assessee company.

4. General Errors in the Order of the CIT(A):
The Tribunal dismissed the Revenue's general grounds of appeal, affirming that the CIT(A)'s order was not erroneous and was based on a thorough examination of the facts and applicable law. The Tribunal noted that the CIT(A) had correctly applied judicial precedents and had provided detailed reasons for holding the reopening of the assessment as invalid and for deleting the addition on merits.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that the reopening of the assessment was invalid and that the addition of ?40,00,000/- was unjustified. The Tribunal emphasized the necessity of specific, tangible material for reopening assessments and the importance of adhering to principles of natural justice.

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