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2014 (7) TMI 389 - AT - Income TaxIncome from unexplained sources - Creditworthiness and genuineness of the transaction - Share application money received Commission paid Held that - The case was reopened u/s 148 of the Act on the basis of information from Investigation Wing that assessee is a beneficiary of accommodation entry providers - The assessee submitted the documents in respect of each of the share applicants like share application form, confirmation of share application, bank statement showing relevant transaction, copy of cheques/drafts of which payment was received, copy of income-tax return of the share applicant, PAN of each applicant and also affidavits and Board resolution AO has not done any verification with regard to the documents to know veracity of the documents - AO has also not issued summons u/s 131 of the Act to the share applicants for their personal presence - Delhi High Court in the case of CIT vs. Gangeshwari Metal P. Ltd. 2013 (1) TMI 624 - DELHI HIGH COURT has held that there are two types of cases, one in which the AO carries out the exercise which is required in law and the other in which the AO sits back with folded hands till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The assessee s case falls in the second category as the AO has not made any investigation with regard to the verification of the documents submitted by the assessee before him - there was a clear lack of enquiry on the part of the AO - no addition can be sustained u/s 68 of the Act - the assessee has adduced adequate evidence/material which are sufficient to discharge the prima facie burden casted upon it by section 68 of the Act thus, the CIT (A) was not justified to sustain the addition Decided in favour of assessee.
Issues Involved:
1. Addition of share application money as "Income from unexplained sources." 2. Addition of commission paid for accommodation entries. 3. Acceptance of identity, creditworthiness, and genuineness of the share applicants. 4. Adequacy of the Assessing Officer's investigation and verification process. 5. Violation of principles of natural justice and procedural lapses. Detailed Analysis: 1. Addition of Share Application Money as "Income from Unexplained Sources": The Assessing Officer (AO) added Rs. 44,75,000/- received as share application money to the income of the assessee, alleging it as income from unexplained sources. The CIT (A) upheld this addition, stating that the assessee failed to establish the identity and creditworthiness of the share applicants and the genuineness of the transactions. The assessee argued that they provided comprehensive documentation, including share application forms, confirmations, bank statements, copies of cheques, income tax returns, PAN details, and other relevant documents. The Tribunal noted that the AO did not undertake any verification of these documents, nor did he issue summons under section 131 to the share applicants for their personal appearance. The Tribunal referenced the case of CIT vs. Gangeshwari Metal P. Ltd., emphasizing that the AO must scrutinize the documents and, if doubts arise, probe further. The Tribunal concluded that the assessee had satisfactorily discharged the onus cast upon them by law, and the AO's lack of inquiry indicated a lack of due diligence. Consequently, the Tribunal directed the deletion of the addition. 2. Addition of Commission Paid for Accommodation Entries: The AO added Rs. 67,125/- as commission paid to entry providers, treating it as unexplained expenditure under section 69C of the Act. The CIT (A) sustained this addition. The assessee contended that the AO did not provide any evidence or basis for this addition and failed to investigate or verify the documents submitted. The Tribunal found that the AO did not conduct any inquiry or verification regarding the alleged commission payment. Citing the principle that the revenue must thoroughly probe and establish the liability under section 68 of the Act, the Tribunal directed the deletion of this addition as well. 3. Acceptance of Identity, Creditworthiness, and Genuineness of the Share Applicants: The assessee submitted various documents to establish the identity, creditworthiness, and genuineness of the share applicants, including PAN details, bank statements, income tax returns, and share application forms. The Tribunal noted that the AO did not scrutinize these documents or conduct any further inquiry. The Tribunal referenced several judgments, including CIT vs. Oasis Hospitality P Ltd and CIT vs. Rock Fort Metal & Minerals Ltd, which held that once the assessee provides sufficient documentation, the onus shifts to the AO to verify and probe further if necessary. The Tribunal concluded that the assessee had satisfactorily discharged their burden, and the AO's failure to investigate or verify the documents rendered the additions unjustified. 4. Adequacy of the Assessing Officer's Investigation and Verification Process: The Tribunal criticized the AO for not conducting a thorough investigation or verification of the documents submitted by the assessee. The AO did not issue summons under section 131, nor did he make any field inquiries. The Tribunal emphasized that the AO's lack of inquiry and reliance on presumptions without verification was insufficient to sustain the additions. The Tribunal highlighted the need for the AO to actively scrutinize and verify the documents and, if necessary, conduct further inquiries to establish the veracity of the transactions. 5. Violation of Principles of Natural Justice and Procedural Lapses: The assessee argued that the AO and CIT (A) failed to provide copies of third-party statements and did not allow the assessee to cross-examine the individuals whose statements were used against them. The Tribunal noted that the AO's failure to provide these documents and opportunities for cross-examination constituted a violation of the principles of natural justice. The Tribunal referenced several judgments, including CIT vs. A.L. Lalpuria Construction P. Ltd. and CIT vs. Reach Cable Network Ltd, which held that the revenue must confront the assessee with any adverse material from third parties. The Tribunal concluded that the procedural lapses and denial of natural justice further invalidated the additions made by the AO. Conclusion: The Tribunal found that the assessee had provided sufficient documentation to discharge their burden of proof regarding the share application money and commission payments. The AO's lack of inquiry and verification, coupled with procedural lapses and denial of natural justice, rendered the additions unsustainable. The Tribunal directed the deletion of the additions and allowed the assessee's appeal.
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