2021 (5) TMI 729 - AT - Income Tax

Validity of reopening of assessment u/s 147 - HELD THAT - During the course of search proceedings in the case of Shirish Chandrakant Shah, statements were recorded from various persons on oath. Similarly statement of Shri Shirish Chandrakant Shah was recorded u/s.132(4) of the Act on 13/04/2013 wherein he had accepted that he is engaged in providing accommodation entries against receipt of cash. In the said statement, he also explained the modus operandi followed by him in providing various accommodation entries to various people. From the aforesaid statements, AO observed that M/s. Avance Technologies Ltd.and M/s. Prabhav Industries Ltd., were controlled and managed by the Shri Shirish Chandrakant Shah and these companies are bogus entities from whom the assessee has received share application money against cash. Since these evidences were gathered by the ld. AO pursuant to search and seizure operation conducted in the case of Shri Shirish Chandrakant Shah, the said information constitutes tangible information and accordingly, assessment of the assessee was duly reopened. In the instant case, the reopening has been made within four years from the end of the relevant assessment year. We hold that tangible information was very much available with the ld. AO to trigger the process of reopening and hence, the reopening is held to be valid and accordingly, the ground No.1 raised by the assessee challenging the validity of reopening of assessment is dismissed. Unexplained cash credit u/s.68 - Capital share gain with share premium - All the transactions are routed through account payee cheques in the regular banking channels. The justification for premium was also duly made by the assessee by giving explanation in writing. This clearly proves the genuineness of the transactions. We find that the ld. AO after receiving all the information in the form of various documentary evidence remained silent. AO did not resort to make any verification in any manner whatsoever either by issuing notice u/s.133(6) of the Act or issuing summons u/s.131 of the Act to the concerned shareholders in order to exmine the veracity of such documents. We find that the ld. AO without resorting to any sort of verification in the manner known to law, had simply proceeded to make addition in the hands of the assessee by treating the receipt of share capital and share premium as accommodation entries merely by relying on the statement recorded from Shri Shirish Chandrakant Shah and his key employess. In any case we also find that the statement of Shri Shirish Chandrakant Shah and his key employees were never furnished to the assessee for its rebuttal. Hence, the said statements cannot be relied upon as sole basis for framing addition in the hands of the assessee. We hold that the addition made u/s.68 of the Act in the case of the assessee is merely based on surmise and conjecture and absolutely without any basis and absolutely without any verification in the manner known to law. Accordingly, we have no hesitation in deleting the addition made u/s.68 of the Act in the case of the assessee. Receipt of share capital and share premium are not accommodation entries, there cannot be any addition that could survive on account of commission u/s.69C.

Issues Involved:
1. Validity of reopening of assessment under Section 148 of the Income Tax Act, 1961.
2. Addition of share capital and share premium as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
3. Addition of unaccounted commission expenditure under Section 69C of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Reopening of Assessment:
The primary issue was whether the reopening of assessment under Section 148 was justified. The original assessment was completed under Section 143(3). The reopening was based on information from the DGIT (Inv) Mumbai about the assessee receiving funds from entities controlled by Shirish Chandrakant Shah, who was alleged to provide accommodation entries. The Tribunal held that the reopening was valid as it was based on tangible information gathered from search and seizure operations, which constituted a valid reason to believe that income had escaped assessment. This was within four years from the end of the relevant assessment year, thus the reopening was upheld.

2. Addition of Share Capital and Share Premium as Unexplained Cash Credit:
The assessee received share capital and share premium from various entities, which the Assessing Officer (AO) treated as unexplained cash credits under Section 68. The AO's addition was based on statements from Shirish Chandrakant Shah, alleging that these were accommodation entries. However, the assessee provided extensive documentation, including bank statements, income tax returns, and confirmations from the shareholders, to prove the identity, creditworthiness, and genuineness of the transactions. The Tribunal noted that the AO did not verify these documents through notices under Section 133(6) or summons under Section 131. The Tribunal held that without such verification, the AO's addition was based on conjecture and surmise. The Tribunal deleted the addition, stating that the assessee had discharged its primary onus under Section 68.

3. Addition of Unaccounted Commission Expenditure:
The AO estimated that the assessee incurred commission expenditure for obtaining the alleged accommodation entries, adding a percentage of the share capital and premium under Section 69C. The Tribunal, having held that the share capital and premium were not accommodation entries, found no basis for the commission expenditure addition. Consequently, the Tribunal deleted the addition under Section 69C as well.

Separate Judgments:
The Tribunal delivered a common judgment for multiple assessment years (2010-11, 2011-12, and 2012-13) as the issues were identical across these years. The Tribunal consistently applied the same reasoning to uphold the validity of reopening and to delete the additions under Sections 68 and 69C for all years, thus partly allowing the appeals of the assessee.

Conclusion:
The appeals were partly allowed, upholding the reopening of assessments but deleting the additions under Sections 68 and 69C due to lack of proper verification and reliance on unsubstantiated statements. The Tribunal emphasized the necessity of proper verification and cross-examination before making such additions.

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