2020 (12) TMI 102 - AT - Income Tax

Power of CIT(A) in enhancing the addition - violating the law u/s 251(2) - enhancement of addition made u/s. 68 - as per assessee, CIT(A) enhanced the addition in a haste, without even enquiring the veracity of the voluminous documents and the statement recorded by AO which were available in the assessment folder - HELD THAT - All the share subscriber companies have sufficient Capital / networth to invest in the share capital of the assessee company - share subscribers have also filed before the AO the source from which they subscribed to shares of assessee except M/s Alexa Vintrade Pvt. Ltd. (though not required as per law in force for AY 2012-13). All of the share subscribers have filed their responses, bank statement, audited balance sheet, certificate of ITR etc. The assessee had discharged the onus on it about the creditworthiness of the shareholders. It is also noted that the source of the investments has been clearly brought to the notice of the AO during assessment proceedings - bank statements of all the shareholders as well as that of the assessee were filed before the AO which revealed that the share capital and premium have been subscribed by them through normal banking channel (NEFT or cheque) which goes on to show that the assessee has discharged the onus in respect of genuineness of the transaction. Based on the documents and materials called for by the AO who accepted the same after verification is an act of enquiry and the view taken by the AO in the light of the material / documents is a probable view - though these materials were available in the assessment folder, the ld. CIT(A) has neither found any infirmity about the documents furnished by assessee or the share applicants nor had any information or material in his possession to challenge the veracity of the documents referred to above - CIT(A) s omission to carry out any enquiry to show that the AO s enquiry was wrong, his opinion casting aspersions on the AO s action based on suspicious and conjectures cannot be accepted and so we reverse his actions of enhancement made and restore the assessment order. Thus in this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, and the AO was satisfied with the identity, creditworthiness and genuineness of the share applicants to the tune of ₹ 20.54 crores which action of AO was a plausible view -coming to the action of Ld CIT(A) in enhancing the addition by ₹ 20.54 crores cannot be accepted in the absence of any investigation, much less gathering of evidence by the CIT(A) to disprove the documents found placed in the assessment folder, therefore section 68 addition could not have been made by Ld CIT(A). The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, and the AO was satisfied with the identity, creditworthiness and genuineness of the share applicants - Therefore, we hold that addition confirmed as well as the enhancement made by Ld CIT(A) cannot be sustained because it was merely based on surmises and conjectures - Decided in favour of assessee.

Summary

Issues Involved:
- Violation of Section 251(2) of the Income-tax Act, 1961
- Enhancement of addition without proper inquiry
- Arbitrary exercise of power by CIT(A)
- Validity of the assessment order and the addition of ?84 lakhs
- Proper service of notice and reasonable opportunity to the assessee

Detailed Analysis:

1. Violation of Section 251(2) of the Income-tax Act, 1961:
The main grievance of the assessee was against the action of the CIT(A) in enhancing the addition by violating the law, specifically Section 251(2) of the Income-tax Act, 1961. According to the assessee, the CIT(A) is required to decide the appeal as per the provisions of subsection (6) of Section 250 of the Act, which mandates that the order disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon, and the reason for the decision.

2. Enhancement of Addition Without Proper Inquiry:
The assessee contended that the CIT(A) enhanced the addition from ?84 lakhs to ?21.38 crores without properly examining the voluminous documents and statements recorded by the AO. The CIT(A) is supposed to record factual findings and disprove the findings of the AO if he differs from them. The assessee argued that the CIT(A) did not conduct any independent inquiry or investigation before enhancing the addition, which was arbitrary and whimsical.

3. Arbitrary Exercise of Power by CIT(A):
The assessee argued that the CIT(A) acted arbitrarily by enhancing the addition without conducting any inquiry or investigation. The CIT(A) did not issue notices under Section 131 of the Act or summon the shareholders and the director of the assessee company. The enhancement was based on surmises and conjecture, without disproving the findings of the AO.

4. Validity of the Assessment Order and the Addition of ?84 Lakhs:
The AO had made a thorough inquiry into the share capital amount received by the assessee for the assessment year 2012-13. The AO issued notices under Sections 142(1) and 142(2) of the Act to the assessee and the shareholders, received their replies and supporting documents, and recorded the statement of the director of the assessee company. The AO accepted the share capital amount received from 36 out of 38 shareholders and made an addition of ?84 lakhs in respect of share capital raised from two companies. The CIT(A) enhanced the addition to ?21.38 crores without disproving the findings of the AO.

5. Proper Service of Notice and Reasonable Opportunity to the Assessee:
The assessee argued that the CIT(A) did not provide a reasonable opportunity to the assessee before enhancing the addition. The CIT(A) sent notices to the old address of the assessee, despite being informed of the change of address. The notices were not served upon the assessee for reasons beyond its control, and the assessee filed an affidavit explaining the cause for non-receipt of notice. The CIT(A) acted in haste by issuing enhancement notices within a short span of 23 days and passing the enhancement order without giving proper opportunity to the assessee.

Judgment:
The tribunal noted that the CIT(A) neither summoned the directors of the assessee company nor the directors of the share applicant companies. The CIT(A) did not find any discrepancies in the documents collected by the AO or any adverse information against the veracity of the documents. The tribunal held that the action of the CIT(A) to enhance the addition without conducting any inquiry or investigation was arbitrary and whimsical. The tribunal restored the assessment order of the AO and deleted the addition of ?84 lakhs made by the AO. The appeal of the assessee was allowed.