2017 (6) TMI 296 - AT - Income Tax

Addition made in respect of share capital - Held that - We find that all the payments were received by assessee through account payee cheques. Shares were allotted to the assessee on making payment through account payee cheque. The assessee has also followed proper returns before ROC. We also found that entire share application money was received by assessee through account payee cheques. The details filed with ROC with regard to allotment of shares were also filed before the lower authorities. It appears that without conducting full enquiry and without giving opportunity to cross-examine Mr. Mukesh M Choksi, the AO has made addition. We restore the matter back to the file of the AO for deciding afresh after making due enquiry and also giving opportunity to cross-examine Mr. Mukesh M Choksi on whose statement the AO has made the impugned addition.

Summary

Issues:
Validity of reopening assessment and merit of addition made in respect of share capital received.

Validity of Reopening Assessment:
The appeal was filed against the order of CIT(A) for the assessment year 2008-09 under section 143(3) r.w.s. 147 of the I.T. Act. The AO reopened the case based on information about accommodation entry in the form of bogus share application money received from the Directorate of Income-tax (Inv.)-I, Mumbai. The assessee argued that the assessment was earlier done as a scrutiny assessment under section 143(3), where detailed inquiry was conducted. The reassessment was challenged as a change of opinion not allowable under section 147. The AO's reasons for reopening were based on a search conducted on a related entity, and the assessee's disclosure during the initial assessment was emphasized. The Tribunal found the reopening justified based on sufficient reasons to believe in income escapement related to the alleged share application money.

Merit of Addition - Share Capital Received:
The AO added the share capital of ?1,02,00,000 received from two companies controlled by Shri Mukesh Choksi as accommodation entries. The CIT(A) upheld this action. The assessee contended that the addition was not justified as the capital receipts were genuine, supported by judicial pronouncements. The Tribunal noted that the AO's conclusion was primarily based on Mukesh Choksi's oral statement during a search operation, without providing the statement to the assessee. The Tribunal found that the documentary evidence, including bank statements and ROC filings, supported the genuineness of the transactions. The addition was deemed premature without a full inquiry and the opportunity to cross-examine Mukesh Choksi. Therefore, the matter was remanded to the AO for a fresh decision after proper investigation and cross-examination.

Conclusion:
The Tribunal allowed the appeal in part for statistical purposes, emphasizing the need for a thorough investigation and due process before making additions based on oral statements. The decision was pronounced on 05/06/2017.