2020 (2) TMI 106 - AT - Income Tax

Reopening of assessment u/s 147 - addition u/s 68 - Failure to discharge onus - HELD THAT - Here it is not a case that there is any lack of inquiry by the Assessing Officer or he is merely gone by the information received from the Investigation Wing, in fact, at all the stages Assessing Officer kept on asking the assessee to provide the requisite details and to produce the directors of the investee companies and the director of the assessee company, because it is assessee s claim that it has received share capital/share premium from these companies. If a company is making such a huge investment, then assessee should have at least made endeavor to produce such parties before the AO when they were not responding to the notices and summons issued by the AO. Not only there was non-attendance from the side of the investee companies, but analysis of the financial credibility of these companies goes to show that they did not had any kind of creditworthiness to make such a huge investment in the assessee company. Mere furnishing of bank statement and documents does not fulfill the requirement of Section 68 because it is essential that business activities of the share subscribers and the financial health needs to be established. Assistance of Principal Officer of the subscribing companies is required and who was/should be present before the Assessing Officer to explain the said position. Otherwise also it is not a case that Assessing Officer has not made any inquiry or where he has issued notices u/s. 133(6) and all the subscribing company have duly responded and submitted and the documents relating to the transaction and confirming the same through evidences. In that case, onus shifts upon the Assessing Officer to prove that these are not correct. Here in this case it is just an opposite, as none of the notices and summons have been complied with, therefore, all the documents submitted by the assessee does not discharge the onus specifically in the light of the material information on record. On merits also, we are of the opinion that on the facts and circumstances of the case ingredients of Section 68 to establish the genuineness of the transaction were not met. Though assessee may have filed certain papers and documents, however, when there is a specific information that the subscribing / investee companies have been found to be providing accommodation entries, and later on none of these investee companies responded to the inquiry made by the Assessing Officer, then onus shifts upon the assessee to rebut such finding and this can only be done when either in response to notices u/s.133(6) parties have responded to the Assessing Officer by furnishing all the details or assessee has produced the parties before the Assessing Officer to be examined. Here in this case the Assessing Officer has given an adverse finding regarding the creditworthiness and there profit making capacity which needs to established. The nature of deposit received by these companies before issuance of cheque has neither been explained nor has been proved either of the companies or by the assessee. The source of the money from where investment has been made needs to be explained by the investee companies or by the assessee, especially when entire transaction has been found to doubtful. Though proviso to section 68 which has been inserted w.e.f. 1.04.2013, that is, from A.Y. 2013-14 provides that Investee Company in whose name such credit is recorded should also offer explanation about the nature and source of such credit. Here in this case though proviso may not strictly apply but facts and circumstances as discussed above does require that the investee company has to explain the source of its investment and creditworthiness. Thus, in the interest of justice we restore this issue to the file of Assessing Officer with direction to the assessee to explain the source and creditworthiness of the investee companies and if required by the Assessing Officer, assessee shall produced the principal officers or directors of these companies to explain the nature and source of investment made in the assessee company. Accordingly the issue on merits is restored back to the file of the Assessing Officer. - Decided against assessee.

Summary

Issues Involved:
1. Validity of reopening under sections 147/148.
2. Addition of ?74,00,000 under section 68 on account of share capital received.
3. Addition of ?1,85,000 on account of alleged commission expenses.
4. Adequate opportunity of hearing and principles of natural justice.
5. Correctness of the proceedings under section 147/148 instead of section 153C.

Detailed Analysis:

1. Validity of Reopening under Sections 147/148:
The assessee challenged the reopening of the assessment under sections 147/148, arguing that the Assessing Officer (AO) did not have any material evidence at the time of recording the reasons. The AO had reopened the assessment based on information received from the ADIT (Investigation) Unit-2(1), New Delhi, regarding accommodation entries of share capital and premium amounting to ?74,00,000 from an entry provider. The detailed reasons recorded by the AO included statements from Shri Pradeep Kumar Jindal and other directors, revealing that the companies were dummy entities used for providing bogus entries.

The Tribunal upheld the validity of the reopening, noting that the AO had credible information and material, including statements and documents, which provided a strong basis for forming a belief that income chargeable to tax had escaped assessment. The reasons recorded by the AO demonstrated independent application of mind and were not based on borrowed satisfaction. The Tribunal concluded that the reopening was valid and justified.

2. Addition of ?74,00,000 under Section 68:
The AO made an addition of ?74,00,000 under section 68, treating the share capital received as unexplained credit. The AO's investigation revealed that the investor companies had no financial strength or creditworthiness to make such investments. The assessee failed to produce the directors of the investor companies or provide sufficient evidence to prove the genuineness of the transactions.

The Tribunal upheld the addition, stating that the assessee did not discharge its onus to prove the identity, creditworthiness, and genuineness of the transactions. The AO's findings, supported by credible information and material, indicated that the share capital received was indeed bogus. The Tribunal emphasized that the mere submission of documents was insufficient without corroborating evidence from the investor companies.

3. Addition of ?1,85,000 on Account of Alleged Commission Expenses:
The AO also made an addition of ?1,85,000, representing 2.5% commission allegedly paid for arranging the accommodation entries. This was based on the modus operandi admitted by Shri Pradeep Kumar Jindal, who stated that he charged a commission for providing such entries.

The Tribunal upheld this addition, noting that the commission payment was part of the elaborate modus operandi for obtaining accommodation entries. The AO's conclusion was supported by evidence and statements, and the addition was found to be in order.

4. Adequate Opportunity of Hearing and Principles of Natural Justice:
The assessee argued that the CIT(A) passed the impugned order without providing adequate opportunity of hearing and in violation of principles of natural justice. The Tribunal noted that the AO had provided multiple opportunities to the assessee to furnish details and produce the directors of the investor companies, which the assessee failed to do.

The Tribunal found that the assessee was given sufficient opportunity to present its case, and the AO had conducted independent inquiries to verify the transactions. Therefore, the principles of natural justice were not violated.

5. Correctness of the Proceedings under Section 147/148 Instead of Section 153C:
The assessee contended that the action should have been taken under section 153C, as the information was received during a search under section 132. The Tribunal clarified that the information was based on documents and statements from the searched person, Shri Pradeep Kumar Jindal, and not on any documents or books of account belonging to the assessee found during the search.

The Tribunal held that the correct course of action was to initiate proceedings under sections 147/148 based on the material information unearthed from the search. The contention that section 153C should have been invoked was dismissed.

Conclusion:
The Tribunal dismissed the appeal of the assessee, upholding the validity of the reopening under sections 147/148, the additions of ?74,00,000 under section 68, and ?1,85,000 on account of commission expenses. The Tribunal found that the assessee was given adequate opportunity to present its case and that the principles of natural justice were not violated. The proceedings under sections 147/148 were found to be appropriate, and the contention regarding section 153C was dismissed. The case was restored to the AO to allow the assessee to explain the source and creditworthiness of the investee companies.