2022 (1) TMI 1154 - AT - Income Tax

Reopening of assessment u/s 147 - Independent application of mind - introduction towards share capital as well as share premium - HELD THAT - The various decisions relied on the Assessee in the instant case that the AO has recorded the satisfaction in a mechanical manner without application of independent mind and on borrowed satisfaction do not hold good. In all those cases the reopening had taken place on the basis of search and seizure operation or survey proceedings in the case of entry providers. There is a case where the survey had taken place in assessee s own premises and the Director as well as Accountant of the assessee company had failed to provide any evidence regarding introduction of share capital. Further the Addl. CIT while granting approval has also recorded his satisfaction. Under these circumstances, we do not find any infirmity in the order of the CIT(A) in upholding the validity of re-assessment proceedings. Accordingly, grounds raised by the assessee challenging the validity of re-assessment proceedings are dismissed. There is not a whisper regarding any opportunity to the assessee to substantiate the introduction of ₹ 1 crore towards share capital as well as share premium. The so-called statement of Shri Pramod Kumar Sharma, the entry operator who admitted to have provided entries to the assessee company has not been provided to the assessee nor the assessee was given an opportunity to cross-examine the entry provider Shri Pramod Kumar Sharma. Principles of natural justice demands that the assessee should be given an opportunity to rebut the statement of third party which is the basis for addition and an opportunity to cross-examine the same person, if demanded. We deem it proper to restore the issue to the file of A.O. with a direction to grant one more opportunity to the assessee to substantiate the introduction of ₹ 1 crore towards share capital/share premium and decide the issue as per fact and law. Needless to say the A.O. shall give due opportunity of being heard to the assessee. Appeal filed by the assessee partly allowed for statistical purposes.

Summary

Issues Involved:
1. Validity of re-assessment proceedings under Section 147 of the Income Tax Act, 1961.
2. Addition of ?1 crore as unexplained credit under Section 68 of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Re-assessment Proceedings:
The primary issue revolves around whether the re-assessment proceedings initiated by the Assessing Officer (A.O.) under Section 147 of the Income Tax Act, 1961 were valid. The A.O. reopened the assessment based on information from the Investigation Wing that a survey under Section 133A revealed the introduction of ?1 crore in the guise of share capital/share premium, which the assessee failed to substantiate with documentary evidence. The assessee argued that the A.O. acted mechanically and relied on the Investigation Wing's report without independent application of mind. However, the Tribunal found that the survey was conducted at the assessee's premises, and neither the director nor the accountant could provide any evidence regarding the share capital. The Tribunal upheld the re-assessment proceedings, stating that the A.O. had recorded reasons and the Additional CIT had granted approval after proper satisfaction. Thus, the grounds challenging the validity of the re-assessment proceedings were dismissed.

2. Addition of ?1 Crore as Unexplained Credit:
The second issue concerns the addition of ?1 crore to the assessee's income under Section 68 of the Income Tax Act, 1961. The A.O. made this addition based on the survey findings and the statement of an entry operator, Shri Pramod Kumar Sharma, who admitted to providing accommodation entries to the assessee. The assessee contested that they were not given an opportunity to cross-examine Sharma and that the addition was made without confronting the assessee with necessary documentary evidence. The Tribunal noted that the assessee was not provided with Sharma's statement nor given a chance to cross-examine him, which violated the principles of natural justice. Consequently, the Tribunal restored the issue to the A.O. with instructions to grant the assessee an opportunity to substantiate the introduction of ?1 crore towards share capital/share premium and to decide the issue afresh as per law. The grounds challenging the addition on merit were thus allowed for statistical purposes.

Conclusion:
The appeal filed by the assessee was partly allowed for statistical purposes. The Tribunal upheld the validity of the re-assessment proceedings but restored the issue of the addition of ?1 crore to the A.O. for reconsideration, ensuring the assessee is given a fair opportunity to present evidence and cross-examine relevant witnesses. The order was pronounced in open court on 27.01.2022.