2019 (6) TMI 472 - AT - Income Tax

Reassessment proceedings u/s 147 - AO in the instant case after receiving information from the Investigation Wing has duly applied his mind and recorded reasons before issue of notice u/s 148 - share application money from entry providers - HELD THAT - Notices u/s 148 were issued, however, it is seen that because of certain clerical mistake, the name of the company was wrongly mentioned which was corrected on the same date and fresh notice was issued at correct postal address mentioning the correct addresses. Therefore, concur with the finding of CIT(A) that it was a bonafide mistake or small irregularity which was immediately corrected/rectified by the AO within the time available and without hampering the legality of the reassessment proceedings. Since the assessment was reopened on the basis of specific information received that the assessee is a beneficiary of taking accommodation entry of ₹ 30 lakhs in the garb of share application money from entry providers Shri Surendra Kumar Jain / Virendra Kumar Jain which was identified by Investigation Wing of the department after thorough investigation and enquiries and the AO after due application of mind has recorded the reasons for reopening of the assessment, therefore, in view of the detailed reasoning given by CIT(A), no infirmity in the same. Accordingly, grounds relating to validity of reassessment proceedings are dismissed. Addition u/s 68 - share application money - commission u/s 69C - HELD THAT - It is an admitted fact that due to non-production of the Directors of the Investment Companies in the shares of assessee company and non-fulfillment of conditions laid down in terms of provisions of S.68, the AO made addition of ₹ 30 lakhs u/s 68 in respect of the share application money received from the five investing companies and further made addition of ₹ 60,000/- u/s 69C being the commission expenses incurred for arranging the accommodation entries. Subsequent to passing of the order of CIT(A) two decisions have come viz., the decision of Hon ble Delhi High Court in the case of PCIT vs. NDR Promoters P.Ltd. 2019 (3) TMI 323 - SUPREME COURT and the decision of PCIT vs. NRA Iron Steel P. Ltd. 2019 (1) TMI 1089 - DELHI HIGH COURT . Neither the assessee nor the AO/Ld.CIT(A) had the benefit of the above two decisions wherein the issue relating to bogus share application money/share capital have been considered and certain observations were made. Restore the issue to the file of AO with the direction to give one more opportunity to the assessee to substantiate with evidence to his satisfaction regarding the identity and credit worthiness of the share applicant companies and genuineness of the transaction. - Appeal of assessee allowed for statistical purposes.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147/148 of the Income Tax Act, 1961.
2. Addition of ?30,00,000 under Section 68 on account of share capital, treating the same as an accommodation entry.
3. Addition of ?60,000 under Section 69C as alleged commission paid for obtaining accommodation entries.
4. Non-adjudication of the initiation of penalty proceedings under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings:
The assessee challenged the validity of the reassessment proceedings, arguing that the Assessing Officer (AO) acted mechanically based on information received from the Investigation Wing without independent application of mind. The assessee also contended that no opportunity for cross-examination of the Jain brothers was provided, and relevant statements were not supplied. However, the Tribunal found that the AO had duly applied his mind and recorded reasons before issuing the notice under Section 148. The Tribunal concurred with the CIT(A)’s finding that any clerical mistakes in the notice were promptly corrected, thus not affecting the legality of the reassessment proceedings. The Tribunal upheld the reassessment proceedings as valid.

2. Addition of ?30,00,000 under Section 68:
The AO made an addition of ?30,00,000 to the assessee’s income under Section 68, treating the share application money received from five companies as accommodation entries. The CIT(A) upheld this addition. The Tribunal noted that the assessee failed to produce the directors of the investing companies and did not fulfill the conditions laid down under Section 68. The Tribunal referred to the Supreme Court’s decision in PCIT vs. NRA Iron & Steel P. Ltd., which emphasized the assessee’s obligation to prove the genuineness of the transaction, the identity of the creditors, and their creditworthiness. Considering the totality of facts and recent judicial pronouncements, the Tribunal restored the issue to the AO for fresh adjudication, directing the AO to give the assessee another opportunity to substantiate the identity, creditworthiness of the share applicants, and the genuineness of the transaction.

3. Addition of ?60,000 under Section 69C:
The AO also made an addition of ?60,000 under Section 69C, being the commission allegedly paid for obtaining accommodation entries. The CIT(A) upheld this addition. The Tribunal did not specifically address this issue separately but implied that it would be reconsidered along with the main issue of the ?30,00,000 addition upon remand to the AO.

4. Non-adjudication of Penalty Proceedings under Section 271(1)(c):
The assessee contended that the CIT(A) erred by not adjudicating the ground related to the initiation of penalty proceedings under Section 271(1)(c). The Tribunal did not specifically address this contention in its detailed analysis, focusing instead on the reassessment validity and the primary additions under Sections 68 and 69C.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes, remanding the matter back to the AO to provide the assessee with another opportunity to substantiate the identity, creditworthiness of the share applicants, and the genuineness of the transactions. The AO was directed to decide the issue afresh, considering the decisions of the Supreme Court in PCIT vs. NRA Iron & Steel P. Ltd. and the Delhi High Court in PCIT vs. NDR Promoters P. Ltd.