2014 (11) TMI 285 - AT - Income Tax

Deletion u/s 68 - Share capital and share application money Commission income earned from activities of providing accommodation entries - Held that - Assessment was completed u/s 144 and therefore application for admission of additional evidence under Rule 46A was filed with Ld. CIT(A) and CIT(A) after inviting remand report from AO has held that share applicants were having PAN numbers and they have admitted to have made investments in the company and we also find that share applicants were directors or their relatives - the AO has even recorded her statement - CIT(A) has rightly deleted the addition The A.O. had calculated the alleged income by applying a notional rate of 2.5% on the amount of deposits in the bank account - Other than deposits in the bank account there is no proof with the A.O. to arrive at the conclusion that assessee was earning commission income - CIT(A) has rightly deleted the same - Decided against revenue. Addition made on protective basis Held that - There was no evidence available on record to prove /establish that the assessee was engaged in providing accommodation entries - there is no material in place to prove that the assessee was engaged in providing accommodation entries in respect of credits in the bank account, it was justified on the part of CIT(A) to convert the protective addition of Rs.,36,05,233/- into substantive addition - the addition should have been restricted to a sum of ₹ 10 lacs for entries referred to in the reasons recorded by the AO u/s 148 - the total addition of ₹ 36,05,233/- is set aside and restrict the addition only to the extent of ₹ 10 lacs being the accommodation entries noted in the reasons recorded by the AO thus, the matter is remitted back to the AO for fresh adjudication - as no detailed inquiry or investigation has either been made by the AO or CIT(A) in respect of these two entries aggregating to ₹ 10 lacs - Decided partly in favour of revenue.

Issues Involved
1. Confirmation of protective addition on a substantive basis without notice.
2. Addition of undisclosed income based on bank entries.
3. Deletion of addition under Section 68 regarding share capital and share application money.
4. Deletion of commission income from accommodation entries.
5. Conversion of protective addition to substantive addition without proper inquiry.

Detailed Analysis

1. Confirmation of Protective Addition on Substantive Basis Without Notice

The assessee contended that the CIT(A) erred in confirming the protective addition on a substantive basis without issuing a notice for enhancement as required under Section 251(2) of the Income-tax Act, 1961, or providing any opportunity to the assessee. The Tribunal acknowledged the procedural lapse and emphasized the necessity of issuing a notice for enhancement before converting a protective addition to a substantive one.

2. Addition of Undisclosed Income Based on Bank Entries

The assessee argued that there was no factual or legal basis, proper inquiry, or investigation to presume any undisclosed income based on various bank entries. The Tribunal noted that the case was reopened under Section 147 based on information from the investigation wing suggesting the assessee was involved in providing accommodation entries. However, the Tribunal found no substantial evidence to support the addition of Rs. 36,05,233 based on bank deposits and peak credits, except for Rs. 10,00,000 mentioned in the reasons recorded under Section 148.

3. Deletion of Addition Under Section 68 Regarding Share Capital and Share Application Money

The Revenue's appeal contested the deletion of Rs. 5,71,244 on account of share capital and share application money made under Section 68. The Tribunal upheld the CIT(A)'s decision, noting that the share applicants had PAN numbers and had admitted to making investments in the company. The Tribunal found that the share applicants were directors or their relatives, and thus, their identity was established. The CIT(A) had rightly deleted the addition based on confirmations and balance sheets of the applicants.

4. Deletion of Commission Income from Accommodation Entries

The Revenue's appeal also challenged the deletion of Rs. 1,23,110, which was added as commission income from providing accommodation entries. The Tribunal agreed with the CIT(A) that the addition was without any basis and could not be sustained legally. The Tribunal noted that there was no evidence to support the claim that the assessee was earning commission income from accommodation entries, thus upholding the deletion of the addition.

5. Conversion of Protective Addition to Substantive Addition Without Proper Inquiry

The CIT(A) had converted the protective addition of Rs. 36,05,233 to a substantive addition without proper inquiry or investigation. The Tribunal found this conversion unjustified, especially since the reasons recorded under Section 148 only mentioned Rs. 10,00,000. The Tribunal restricted the addition to Rs. 10,00,000 and remanded the matter back to the Assessing Officer for fresh adjudication regarding these entries, instructing the AO to provide a reasonable opportunity for the assessee to cross-examine the respective persons.

Conclusion

The appeals by both the assessee and the Revenue were partly allowed for statistical purposes. The Tribunal directed the Assessing Officer to re-adjudicate the matter concerning the Rs. 10,00,000 in accommodation entries after providing the assessee a fair opportunity to present their case. The Tribunal upheld the deletion of the addition under Section 68 and the commission income, emphasizing the need for proper procedural adherence and substantial evidence in making additions.

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