2022 (3) TMI 301 - AT - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 - reliance on report of the Investigation Wing that the assessee has received accommodation entry from four companies - cross-examination of Shri S.K. Gupta, whose statement recorded to make addition - CIT(A) dismissed the ground challenging the validity of the reassessment proceedings as well as the addition on merit - HELD THAT - It is clear that despite the request of the assessee for cross-examination of Shri S.K. Gupta, whose statement is the basis of addition made by the AO, the AO has not provided the opportunity of cross-examination to the assessee. We find, identical issue had come up before the coordinate Bench of the Tribunal in the case of TRN Impex Pvt. Ltd. 2021 (2) TMI 678 - ITAT DELHI where the Tribunal deleted the addition on the ground that the AO did not grant the opportunity of cross-examination despite being asked for by the assessee. In the instant case, reopened the assessment on the basis of the report of the Investigation Wing that the assessee has received accommodation entry from four companies, the details of which are given in the reasons recorded. We find, the AO after going through the various statements filed by the assessee from time to time, made addition being the share application money/share capital received by the assessee by invoking the provisions of section 68 of the Act and made further addition being 1.5% of the above amount which the assessee incurred as commission for arranging the accommodation entries. CIT(A) dismissed the ground challenging the validity of the reassessment proceedings as well as the addition on merit. It is the submission of the ld. Counsel that the assessee during the assessment proceedings had categorically asked for the corss-examination of Shri S.K. Gupta, whose statement was the basis for making the addition to the total income of the assessee. Despite the request of the assessee for cross-examination of Shri S.K. Gupta, whose statement is the basis of addition made by the AO, the AO has not provided the opportunity of cross-examination to the assessee. Since, in the instant case also the reopening was made on the basis of the report of the Investigation Wing in the case of Mukesh Gupta group along with its close confidants Sh. Rajan Jassal and Sh. Surinder Pal Singh, but the addition was made on the basis of the statement of Shri S.K. Gupta recorded during the course of survey on 20.11.2007 in the case of M/s Sino Credits Liasing Limited, M/s Rapid Packaging Limited, Girisho Company (P.) Limited, M/s Mitsu Securities Management (Pvt.) Ltd., M/s Sino Securities and M/s Anila Industries and since even after repeated requests of the assessee, the AO has not provided the opportunity of cross-examination of Shri S.K. Gupta to the assessee, therefore, respectfully following the decisions cited supra, we hold that the addition made by the AO and sustained by the CIT(A) is not in accordance with the law. We, therefore, delete the addition. So far as the grounds challenging the validity of the reassessment proceedings are concerned, the ld. Counsel for the assessee did not seriously argue these grounds for which we dismiss the grounds challenging the validity of the reassessment proceedings. - Decided partly in favour of assessee.

Issues Involved:
1. Validity of the reassessment proceedings under Section 147/148.
2. Justification of the addition of ?55,85,000/- as share capital/share application money under Section 68.
3. Justification of the addition of ?83,775/- as commission for arranging accommodation entries.
4. Denial of cross-examination of the witness whose statement was used for making the addition.
5. Adequacy of the evidence provided by the assessee to substantiate the share application money.
6. Charging of interest under Sections 234A and 234B.
7. Initiation of penalty proceedings under Section 271(1)(c).

Detailed Analysis:

1. Validity of the Reassessment Proceedings:
The assessee challenged the validity of the reassessment proceedings on the grounds that the reasons recorded by the AO were based on information from the Investigation Wing without any independent evidence. The AO had reopened the assessment based on the report that the assessee received accommodation entries amounting to ?23,50,000/-. The CIT(A) upheld the reassessment, asserting that the AO had followed the proper procedure, including obtaining necessary approvals and disposing of objections through a speaking order. The Tribunal dismissed the grounds challenging the reassessment proceedings, noting that the assessee did not seriously argue these grounds.

2. Addition of ?55,85,000/- as Share Capital/Share Application Money:
The AO made an addition of ?55,85,000/- under Section 68, asserting that the share application money received by the assessee was from non-existent companies providing accommodation entries. The AO relied on the statement of Shri S.K. Gupta, recorded during a survey, who admitted to arranging such entries. The CIT(A) upheld the addition, stating that the assessee failed to prove the identity, creditworthiness, and genuineness of the transactions. The Tribunal, however, found that the AO did not allow the assessee to cross-examine Shri S.K. Gupta, whose statement was crucial for the addition. Citing various judicial precedents, the Tribunal held that the addition could not be sustained without providing the opportunity for cross-examination and deleted the addition.

3. Addition of ?83,775/- as Commission:
The AO also added ?83,775/- as commission for arranging accommodation entries, calculated at 1.5% of the alleged share application money. Since the Tribunal deleted the principal addition of ?55,85,000/-, it also deleted the related commission addition.

4. Denial of Cross-Examination:
The assessee repeatedly requested the cross-examination of Shri S.K. Gupta, whose statement was the basis for the addition. The AO denied this request, arguing that the original statement was sufficient and there was no need for cross-examination. The Tribunal found this denial unjustified and emphasized that statements recorded behind the back of the assessee could not be used without allowing cross-examination. This denial was a significant factor in the Tribunal's decision to delete the addition.

5. Adequacy of Evidence Provided by the Assessee:
The assessee provided various documents, including share application forms, bank statements, and income-tax returns, to substantiate the share application money. The AO, however, dismissed these as insufficient, citing non-compliance with summons and the non-existence of the companies at the given addresses. The Tribunal noted that the AO did not conduct independent inquiries and relied solely on the statement of Shri S.K. Gupta, which was not corroborated by allowing cross-examination.

6. Charging of Interest under Sections 234A and 234B:
The CIT(A) upheld the AO's direction to charge interest under Sections 234A and 234B, treating it as mandatory and consequential. Since the Tribunal deleted the principal additions, the interest charges would also be affected accordingly.

7. Initiation of Penalty Proceedings under Section 271(1)(c):
The CIT(A) upheld the initiation of penalty proceedings under Section 271(1)(c). However, with the deletion of the principal additions, the basis for such penalty would be undermined.

Conclusion:
The Tribunal partly allowed the appeal, primarily on the grounds that the AO failed to provide the opportunity for cross-examination of the key witness, Shri S.K. Gupta, whose statement was the basis for the additions. Consequently, the additions of ?55,85,000/- and ?83,775/- were deleted. The reassessment proceedings were upheld, but the related interest and penalty implications would need reconsideration in light of the deletions.

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