2016 (12) TMI 1476 - AT - Income Tax

Addition on sale of investment on the basis of suspicion - proof of identity - Held that - We are of the opinion that mere furnishing of the confirmation of the parties, such as name, address and permanent account number does not prove the identity, creditworthiness, genuineness of the transaction where the assessing officer has got the information from the investigation wing and further the same were also corroborated by the bank statement obtained by the Ld. assessing officer from the bankers of the buyer companies where the cash was deposited of the identical amount on the same day and the cheques were issued to the assessee towards the purchase of those shares. Despite the opportunity given by the Ld. assessing officer to the assessee to produce the parties same could not be produced by the assessee because of the paucity of time as the assessee was asked to produce the parties on 13/12/2010 and merely within 14 days the assessment was framed on 27th /12 /2010. The assessment was framed by the the Ld. assessing officer because of the time barring limitation arriving for passing of the above said assessment order. In view of this we set aside the addition of ₹ 19.50 lakhs back to the file of the Ld. assessing officer and direct the assessee within 3 months of this order to produce the directors of the above company along with the requisite details such as the sources of funds deposited by those companies into the bank account in cash before issue of the cheques and the transaction price of purchase of shares of the companies to the satisfaction of the assessing officer to prove the identity, creditworthiness, and genuineness of the transaction of the sale of shares of futuristic Ltd by the assessee. - Decided in favour of assessee as directed Disallowance being 20% of the expenses - disallowance has been made by the Ld. assessing officer as the assessee has failed to produce the books of accounts with supporting bills and vouchers - Held that - The assessee could not produce the books of accounts before the Ld. assessing officer and therefore the disallowance has been made by the Ld. assessing officer estimating 20% of the all the expenditure of the assessee including the opening stock as disallowable. The Ld. 1st appellate authority has reduced the above amount by the amount of opening stock, but confirmed the balance disallowance of expenditure. Such disallowances has resulted because the assessee could not produce the books of accounts before the Ld. assessing officer due to the death of one of the key directors. Therefore, assessee is granted one more opportunity to produce the books of accounts of the assessee before the Ld. assessing officer for verification of the above expenditure as estimated disallowance cannot be upheld, When the assessee is ready to produce the books of accounts. In the result ground No. 8 of the appeal of the assessee is set aside back to the file of the assessing officer with a direction to the assessee to produce the books of accounts along with all supporting vouchers and bills within three months of this order to satisfy the assessing officer about the genuineness of the claim of expenditure of the assessee.

Issues Involved:
1. Validity of assessment order under Sections 143(3)/147.
2. Validity of issuance/service of notice under Sections 148/149.
3. Satisfaction of the assessing officer for the formation of belief that income has escaped assessment.
4. Assumption of jurisdiction based on third-party deposition.
5. Opportunity to cross-examine the material used for assessment.
6. Addition of ?35,50,000 on account of sale of investment.
7. Addition of genuine sale of investments to income.
8. Disallowance of 20% expenses amounting to ?28,96,040.
9. Validity of additions based on rejected books of accounts.

Detailed Analysis:

1. Validity of Assessment Order under Sections 143(3)/147:
The assessee challenged the assessment order dated 27.12.2010, claiming it was bad in law and against the facts. However, this issue was not pressed during the appeal, and thus it was dismissed.

2. Validity of Issuance/Service of Notice under Sections 148/149:
The assessee argued that there was no valid issuance/service of notice under Sections 148/149, making the assumption of jurisdiction void. This issue was also not pressed and dismissed accordingly.

3. Satisfaction of the Assessing Officer for Formation of Belief that Income has Escaped Assessment:
The assessee contended that the assessing officer assumed jurisdiction without proper satisfaction that income had escaped assessment. This issue was not pressed in the appeal and was dismissed.

4. Assumption of Jurisdiction Based on Third-Party Deposition:
The assessee claimed that the jurisdiction was assumed based on vague third-party deposition without material evidence. This issue was not pressed and dismissed.

5. Opportunity to Cross-Examine the Material Used for Assessment:
The assessee argued that no opportunity was given to cross-examine the material used for concluding that the assessee was a beneficiary of alleged accommodation entries. This issue was not pressed and dismissed.

6. Addition of ?35,50,000 on Account of Sale of Investment:
The assessing officer added ?35,50,000 to the income based on suspicion and information from the investigation wing, claiming the assessee received bogus accommodation entries. The assessee provided confirmation letters, but the assessing officer disbelieved them and found the parties non-existent at the given addresses. The tribunal set aside the addition back to the assessing officer, directing the assessee to produce the directors of the involved companies and prove the identity, creditworthiness, and genuineness of the transactions within three months.

7. Addition of Genuine Sale of Investments to Income:
The assessee argued that the genuine sale of investments was wrongly added to the income based on third-party evidence without cross-examination. The tribunal directed the assessing officer to re-examine the transactions and verify the identity, creditworthiness, and genuineness of the involved parties.

8. Disallowance of 20% Expenses Amounting to ?28,96,040:
The assessing officer disallowed 20% of the expenses due to the assessee's failure to produce books of accounts and supporting documents. The tribunal granted the assessee another opportunity to produce the books of accounts and supporting documents within three months for verification by the assessing officer. The estimated disallowance was set aside for reassessment.

9. Validity of Additions Based on Rejected Books of Accounts:
The assessee argued that once the books of accounts were rejected, any addition based on the same set of accounts could not be sustained. This issue was not pressed and dismissed.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions to the assessing officer to re-examine the transactions related to the sale of investments and the disallowed expenses. The assessee was granted an opportunity to produce necessary documents and evidence within three months to substantiate their claims.

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