2015 (3) TMI 410 - HC - Income Tax

Unexplained credit u/s 68 - commission paid on entry taken from entry provide - Reopening of assessment - Held that - The CIT (Appeals) as also the ITAT in the case at hand in our view unjustifiably criticized the AO for not having confronted the assessee with the facts regarding return of some of the summons under Section 131 or not having given opportunity for the identity of all the share applicants to be properly established. The order sheet entries taken note of in the order of CIT (Appeals) seem to indicate otherwise. The order of CIT (Appeals) which was confirmed by ITAT in the second appeal does not demonstrate as to on the basis of which material it had been concluded that the genuineness of the transactions had been duly established. There is virtually no discussion in the said orders on such score except for vague description of the material submitted by the assessee at the appellate stage. Whilst it does appear that the time given to the assessee for proving the identity of the third party was too short and further that it is probably not always possible for the assessee placed in such situation to be able to enforce the physical attendance of such third party (who in the case of share applicants vis- -vis a company would be individuals at large and may not be even in direct or personal contact) the curtains on such exercise at verification may not be drawn and adverse inferences reached only on the basis of returning undelivered of the summonses under Section 131. Conversely with doubts as to the genuineness of some of the parties persisting on account of non-delivery of the processes the initial burden on the assessee to adduce proof of identity cannot be treated as discharged. We are inclined to agree with the CIT (Appeals) and consequently with ITAT to the extent of their conclusion that the assessee herein had come up with some proof of identity of some of the entries in question. But from this inference or from the fact that the transactions were through banking channels it does not necessarily follow that satisfaction as to the creditworthiness of the parties or the genuineness of the transactions in question would also have been established. The AO here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But CIT (Appeals) having noticed want of proper inquiry could not have closed the chapter simply by allowing the appeal and deleting the additions made. It was also the obligation of the first appellate authority as indeed of ITAT to have ensured that effective inquiry was carried out particularly in the face of the allegations of the Revenue that the account statements reveal a uniform pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question. This necessitated a detailed scrutiny of the material submitted by the assessee in response to the notice under Section 148 issued by the AO as also the material submitted at the stage of appeals if deemed proper by way of making or causing to be made a further inquiry in exercise of the power under Section 250(4). This approach not having been adopted the impugned order of ITAT and consequently that of CIT (Appeals) cannot be approved or upheld. - Decided in favour of the Revenue.

Issues Involved:
1. Addition of Rs. 71,00,000/- on account of unexplained credit under Section 68 of the Income Tax Act.
2. Addition of Rs. 1,42,000/- on account of commission paid on entry taken from entry provider.
3. Validity of re-opening of assessment under Section 147 of the Income Tax Act.

Detailed Analysis:

1. Addition of Rs. 71,00,000/- on account of unexplained credit under Section 68 of the Income Tax Act:
The Revenue contended that the assessee received accommodation entries from entry providers and treated Rs. 71,00,000/- as unexplained credit under Section 68. The AO re-opened the case based on information from DIT (Investigation), New Delhi, and issued a notice under Section 148. During re-assessment, the AO found that share capital was raised from twelve entities, which were allegedly engaged in providing accommodation entries. Summons issued to these entities were either unserved or not responded to, leading the AO to treat the amount as unexplained credit. The CIT (Appeals) deleted the addition, relying on CIT v. Lovely Exports Pvt. Ltd., stating that the assessee had discharged the preliminary burden by providing necessary documents. The ITAT upheld the CIT (Appeals) decision, noting that the AO failed to conduct proper inquiries and confront the assessee with adverse material. However, the High Court found that the CIT (Appeals) and ITAT unjustifiably criticized the AO and failed to ensure proper inquiry. The matter was remitted to the CIT (Appeals) for fresh consideration.

2. Addition of Rs. 1,42,000/- on account of commission paid on entry taken from entry provider:
The AO added Rs. 1,42,000/- as probable commission paid to entry providers. The CIT (Appeals) deleted this addition along with the unexplained credit, and the ITAT upheld this deletion. The High Court, while remitting the matter to the CIT (Appeals), directed that this issue should also be reconsidered in light of the fresh inquiry.

3. Validity of re-opening of assessment under Section 147 of the Income Tax Act:
The assessee challenged the validity of the re-opening of the assessment, arguing that it was barred by limitation and based on insufficient grounds. The ITAT did not address this issue, deeming it academic and infructuous after rejecting the Revenue's appeal. The High Court directed the CIT (Appeals) to examine the validity of the assessment re-opening before scrutinizing the questioned credit entries, as it pertains to the jurisdictional issue.

Conclusion:
The High Court remitted the matter to the CIT (Appeals) for fresh adjudication, emphasizing the need for proper inquiry and consideration of the validity of the assessment re-opening. The appeal was disposed of with directions for detailed scrutiny of the credit entries and commission payments, ensuring adherence to legal procedures and principles of natural justice.

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