2022 (11) TMI 668 - AT - Income Tax

Reopening of assessment u/s 147 - accommodation entries in the nature of sales/unsecured loans and share application money - HELD THAT - Additional ground can be seen that from the perusal of assessment records that approval was sought prior to recording reasons therefore the additional ground taken by the assessee does not sustain hence dismissed. As regards Ground No. 1 related to notice from the records presented by the Ld. D.R. before was it can be seen that the reasons were properly recorded and the notice was issued to the assessee. In respect to the contention of the assessee that no cross-examination was done related to statement of Shri Praveen Jain it appears to be genuine as the Assessing Officer has not given any opportunity for the assessee to counter the statement made by Shri Praveen Jain. As regards the merit of the case is concerned the assessee has provided all the details related to creditworthiness identity and genuineness of the transaction thereby provided share application form copy of Gold Resolution of the Company to invest in shares of assessee company of those two companies. The assessee before the AO presented the bank statement of said company i.e. Yash V. Jewels Ltd. Ostwal Trading India Pvt. Ltd. reflecting these transactions of investment in assessee s company as well as the financial capacity of the said companies. In fact no statement of the Directors of Creditors Company were recorded by the authorities and Praveen Jain was not the Director of the Creditor company. Nearly reliance on the statement of third party cannot be the sole criteria for making addition under Section 68 - Appeal of the assessee is partly allowed.

Summary

Issues involved:
1. Validity of reopening of assessment.
2. Addition under Section 68 as unexplained cash credit.
3. Proper issuance of notice under Section 143(2).
4. Cross-examination related to statement of a third party.
5. Merit of the case regarding creditworthiness, identity, and genuineness of the transaction.

Validity of reopening of assessment:
The appeal challenged the reopening of assessment, contending that the reasons were recorded subsequent to the approval granted by the Ld JCIT. The Assessing Officer observed a modus operandi leading to detection of accommodation entries. The assessee submitted various documents, but the Assessing Officer found the identity of the creditor unproved and the genuineness of the transaction not established, resulting in an addition under Section 68. The CIT(A) upheld the addition. The Ld. A.R. argued that the reasons were recorded prior to approval, highlighting procedural irregularities. However, the Ld. D.R. defended the process. The Tribunal dismissed the additional ground, noting that approval was sought before recording reasons, and upheld the issuance of notice.

Addition under Section 68 as unexplained cash credit:
The Assessing Officer made an addition under Section 68 due to unexplained cash credit of Rs. 25,00,000. The assessee provided documents, but the identity of the creditor remained unproved. The CIT(A) upheld the addition, leading to the appeal. The Ld. A.R. argued that all relevant details were submitted, questioning the merit of the addition. The Ld. D.R. supported the Assessing Officer's decision based on evidence from a third party. The Tribunal found the lack of cross-examination concerning the third party's statement concerning. The assessee presented evidence related to creditworthiness and genuineness, leading to a partial allowance of the appeal.

Proper issuance of notice under Section 143(2):
The Ld. A.R. contended that no notice under Section 143(2) was issued, challenging the validity of the assessment process. The Ld. D.R. maintained that the notice was properly issued, as evident from the assessment records. The Tribunal reviewed the records and confirmed the proper issuance of the notice, dismissing the challenge raised by the assessee.

Cross-examination related to statement of a third party:
The issue of cross-examination regarding the statement of a third party, Shri Praveen Jain, was raised by the assessee. The lack of opportunity for cross-examination was considered a procedural flaw. The Tribunal acknowledged the importance of providing such an opportunity to counter statements made by third parties, emphasizing the need for a fair process in assessments.

Merit of the case regarding creditworthiness, identity, and genuineness of the transaction:
The assessee presented details related to creditworthiness, identity, and genuineness of the transaction, including documents and statements. The Tribunal noted the reliance on a third party's statement without allowing cross-examination was insufficient to justify the addition under Section 68. The Tribunal partially allowed the appeal, emphasizing the importance of assessing the merit of the case based on evidence presented by the assessee.