2019 (3) TMI 230 - AT - Income Tax

Addition u/s 68 in Revision proceedings u/s 263 - unexplained share application money - AO admittedly did not resort to make enquiries in the manner stated by the ld CIT u/s 263 of the Act inspite of the fact that all the necessary details were very much available before him - HELD THAT - The entire transactions of share capital and share premium was the subject matter of verification in the re-assessment proceedings by the AO, wherein the shareholders had duly responded to notice u/s 133(6) of the Act by confirming the fact of making investments in the assessee company. The shareholders had also duly furnished their income tax assessment particulars. Pursuant to directions of the CIT u/s 263 AO was mandated to make direct verifications about the genuineness of the transactions and creditworthiness of the shareholders by making necessary specific enquiries as listed out supra. CIT had specifically directed the AO to make enquiries directly from the shareholders and not through the assessee. Hence non-appearance of the assessee or non-submission of details before the AO intentionally or unintentionally does not make any relevance here. 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. We deem it fit and appropriate, in the interest of justice and fair play, to remand the matter back to the file of the 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. Grounds raised by the assessee are allowed for statistical purposes.

Summary

Issues Involved:
1. Justification of the addition made under Section 68 of the Income Tax Act towards share application money.
2. Adequacy of the enquiry conducted by the Assessing Officer (AO) and compliance with directions under Section 263 of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Justification of the Addition Made Under Section 68 of the Income Tax Act:
The primary issue in this appeal is whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in upholding the addition of ?7,65,00,000/- made under Section 68 of the Income Tax Act towards share application money. The assessee had filed a return for the Assessment Year (AY) 2008-09 declaring a total loss of ?283/-, which was initially processed under Section 143(1) of the Act. Subsequently, the assessment was reopened under Section 148 and completed under Section 147/143(3), determining the total income at ?17,720/-. The CIT invoked Section 263, directing the AO to conduct a thorough investigation into the genuineness and source of the share application money, as well as the identity and creditworthiness of the shareholders. The AO, in compliance, issued notices under Sections 142(1) and 131, but received no responses from the assessee or the directors of the shareholder companies. Consequently, the AO added the share application money as unexplained cash credit under Section 68 of the Act, which was upheld by the CIT(A).

2. Adequacy of the Enquiry Conducted by the AO and Compliance with Directions Under Section 263 of the Income Tax Act:
The Tribunal noted that the shareholders had responded to notices under Section 133(6) during the original reassessment, confirming their investments and providing their income tax details. The CIT, in the revision order under Section 263, had directed the AO to conduct independent enquiries into the genuineness of the transactions and the creditworthiness of the shareholders, without involving the assessee. The AO, however, failed to comply fully with these directions, as he did not make the necessary independent enquiries or investigate multiple layers of investment as mandated. The Tribunal relied on the decision of the Hon'ble Delhi High Court in the case of CIT vs Jansampark Advertising & Marketing Pvt Ltd, which emphasized the necessity of a detailed enquiry by the AO and the appellate authorities to ensure the genuineness of the transactions.

The Tribunal concluded that the AO did not fulfill his obligation to conduct a proper enquiry as directed by the CIT under Section 263. Therefore, the Tribunal remanded the matter back to the AO for a de novo assessment, ensuring compliance with the directions of the CIT and providing the assessee a reasonable opportunity of being heard. The appeal of the assessee was allowed for statistical purposes.

Conclusion:
The Tribunal found that the AO did not conduct the required independent enquiries as directed under Section 263 of the Act. Consequently, the Tribunal remanded the matter back to the AO for a fresh assessment, ensuring a thorough investigation into the genuineness and creditworthiness of the shareholders as mandated. The appeal was allowed for statistical purposes, providing the assessee an opportunity for a fair hearing.