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2012 (7) TMI 279 - AT - Income TaxUnexplained credits under the provisions of section 68 - addition made u/s 68 during reopening of assessment u/s 147/148 - Held that - First sentence of the socalled reasons recorded by the AO is mere information received from the Deputy Director of Income Tax (Investigation). The second sentence is a direction given by the very same Deputy Director of Income Tax (Investigation) to issue a notice u/s 148 and the third sentence again comprises of a direction to initiate proceedings u/s 148 in respect of cases pertaining to the relevant ward, it is clear that the AO referred to the information and the two directions as reasons on the basis of which he was proceeding to issue notice under Section 148 - From the so-called reasons, it is not at all discernible as to whether the AO had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment - there is no reference to any document or statement, except Annexure, which has been quoted as Annexure cannot be regarded as a material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. Annexure is not a pointer and does not indicate escapement of income - need not go into the merits of the addition made by the AO as the CIT (A) had deleted the addition on merits and the Tribunal has simply remitted the case back to the AO - in favour of assessee.
Issues Involved:
1. Confirmation of the AO's order by CIT(A) without following the decisions of higher courts. 2. Lack of evidence to show that assessee's funds were routed through share applicants. 3. Denial of identity, creditworthiness, and genuineness of share applicants' transactions. 4. Non-provision of statements implicating the assessee. 5. Denial of cross-examination opportunity. 6. Treatment of amounts received for share allotment as unexplained credits under Section 68. 7. Addition of commission expenses based on conjectures. Detailed Analysis: 1. Confirmation of AO's Order Without Following Higher Court Decisions: The assessee argued that the CIT(A) erred in confirming the AO's order without adhering to the decisions of the Apex Court in Lovely Exports Pvt. Ltd. and the jurisdictional High Court in Value Capital Exports Pvt. Ltd. and Value Capital Services Pvt. Ltd. The Tribunal noted that the CIT(A) had relied on these judgments in favor of the assessee in previous appeals, which were set aside by the Tribunal, directing the AO to re-examine the issues. 2. Lack of Evidence of Routing Funds: The assessee contended that the AO did not present any evidence showing that the assessee's funds were routed through share applicants. The Tribunal observed that the AO mechanically acted on the information supplied by the Directorate of Income Tax (Investigation) without applying his own mind, as highlighted in similar cases by the jurisdictional High Court. 3. Denial of Identity, Creditworthiness, and Genuineness: The AO denied the identity, creditworthiness, and genuineness of the transactions despite the share applicants being registered companies with PAN, bank accounts, and filing of Income Tax Returns. The Tribunal referenced the assessee's reliance on the jurisdictional High Court's judgments, which established that the AO must independently verify these aspects rather than relying solely on information from the Investigation Wing. 4. Non-Provision of Statements: The assessee argued that the AO did not provide the statements of persons implicating the assessee as the beneficiary of bogus entries. The Tribunal noted that the AO's actions were mechanical and lacked independent verification, as required by the legal precedents. 5. Denial of Cross-Examination Opportunity: The assessee requested the opportunity to cross-examine the persons who implicated them, which the AO denied. The Tribunal emphasized that such procedural lapses, where the AO did not allow cross-examination, were critical and aligned with the principles laid down by higher courts. 6. Treatment of Amounts as Unexplained Credits: The AO treated amounts received through payee's account cheques/drafts for share allotment as unexplained credits under Section 68, based on conjectures and suspicions. The Tribunal highlighted that the identity and creditworthiness of the share applicants were established, and mere suspicion was insufficient for such additions, as per the legal standards. 7. Addition of Commission Expenses: The AO added commission expenses based on mere conjectures and suspicions. The Tribunal found that such additions were not substantiated with concrete evidence and were thus unsustainable. Conclusion: The Tribunal concluded that the initiation of proceedings under Section 147/148 by the AO was mechanical and lacked independent application of mind. The reassessment proceedings and subsequent additions were deemed ab initio void following the jurisdictional High Court's judgments. Consequently, the Tribunal allowed the appeals, setting aside the additions made by the AO and confirmed by the CIT(A). Order: The appeals of the assessee were allowed, and the order was pronounced in the open court on 29.6.2012.
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