2019 (8) TMI 834 - AT - Income Tax

Legality of assessment passed u/s 144/143(3) - since the assessee has complied with the notices the order u/s 144/143(3) of the Act is not appropriate - the typographical error is curable u/s 292B - HELD THAT - It is well settled principle of law that mention or application of a wrong provision of law to a given facts of case itself does not make an authority incompetent to deal with the factual situation unless there is no provision which can take care of the jurisdictional fact or the jurisdiction of the authority itself. Here in this case, the AO is vested with the power to assess the assessee s income and mere mention of wrong provisions will not render the assessment order invalid. For this proposition of law we rely on the order of the Hon ble Supreme Court in L. Hazari Mal Kuthiala vs ITO 1960 (9) TMI 7 - SUPREME COURT . Therefore, we find force in ground no. 1 and 2 of the revised grounds of appeal of Revenue and we allow these grounds of appeal of the Revenue. Addition u/s 68 - alleged that subscribers of the share capital lacked financial credibility to make investment of this magnitude - no rely pursuant to notice u/s 133(6) - the directors of the share subscribers did not turn up before AO even after summon - HELD THAT - In this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee cannot be brushed aside by the AO to draw adverse view cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, we hold that an addition cannot be sustained merely based on inferences drawn by circumstance. Applying the propositions laid down in these case laws to the facts of this case, we are inclined to uphold the order of the Ld. Commissioner of Income Tax (Appeals) To sum up section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO's record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. No addition was warranted under section 68 - Decided in favour of assessee.

Issues Involved:
1. Condonation of Delay in Filing Appeal
2. Legality of Assessment under Section 144/143(3) of the Income Tax Act
3. Deletion of Addition under Section 68 of the Income Tax Act

Detailed Analysis:

1. Condonation of Delay in Filing Appeal:
The appeal by the Revenue was delayed by 68 days. The Revenue filed a condonation application, which was provided to the respondent's counsel. After hearing both parties and considering the reasons stated in the condonation application, the Tribunal found a reasonable cause for the delay and decided to condone it. Consequently, the Tribunal proceeded to hear the appeal.

2. Legality of Assessment under Section 144/143(3) of the Income Tax Act:
The Revenue contested the CIT(A)'s decision that the assessment made under Section 144/143(3) of the Income Tax Act was illegal. The CIT(A) had allowed the assessee's grounds, stating that the assessment should have been made under Section 143(3) since the assessee complied with notices and appeared before the CIT(A). The Revenue argued that any typographical error in mentioning the section is curable under Section 292B. The Tribunal, referencing the Supreme Court’s decision in L. Hazari Mal Kuthiala vs ITO 41 ITR 12 (SC), held that the mere mention of a wrong provision does not invalidate the assessment if the authority has jurisdiction. Therefore, the Tribunal found merit in the Revenue's grounds and allowed them.

3. Deletion of Addition under Section 68 of the Income Tax Act:
The Revenue challenged the CIT(A)'s deletion of an addition of ?5,45,00,000 made by the AO under Section 68. The AO had added this amount, suspecting the financial credibility of the share capital subscribers. The AO noted that the assessee-company raised significant capital and premium from three subscriber companies, but only one company, M/s. Devesh Management Services Pvt. Ltd., responded to notices. The AO found discrepancies in the financials of the subscribing companies and added the amount as unexplained income since the directors and investors did not appear before him.

The CIT(A) directed the deletion of the addition, subject to verification by the AO that the investments were made by the assessee's sister concerns and group companies with common directors. The Tribunal noted that the AO had given effect to the CIT(A)'s order and found no adverse findings against the assessee. The Tribunal emphasized that the assessee had provided sufficient documentation to prove the identity, creditworthiness, and genuineness of the transactions, including confirmations, bank statements, and income tax returns of the share subscribers.

The Tribunal referred to several judicial precedents, including the Supreme Court's decision in CIT vs. Lovely Exports Pvt. Ltd. and the Calcutta High Court's decision in CIT vs. Dataware Pvt. Ltd., which support the principle that once the assessee provides prima facie evidence, the onus shifts to the AO to disprove it. The Tribunal concluded that the AO failed to conduct a proper inquiry and merely rejected the evidence without substantial grounds. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the addition under Section 68, finding no merit in the Revenue's appeal.

Conclusion:
The Tribunal condoned the delay in filing the appeal, upheld the legality of the assessment under the correct provision, and confirmed the deletion of the addition under Section 68, emphasizing the need for the AO to conduct thorough inquiries and not merely reject evidence provided by the assessee. The appeal of the Revenue was partly allowed.

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