2017 (9) TMI 663 - AT - Income Tax

Reopening of assessment - Addition u/s. 68 - Investigation made by the Investigation Wing of the Department to conclude that nothing but a sham transaction of accommodation entry - Held that - As the assessee remain non-cooperative before the AO and did not file requisite documents before the AO, thus the entry remains unexplained in the hands of the assessee and also no independent inquiry has been undertaken by the AO in the instant case and AO has mainly relied upon the Investigation Wing Report. Therefore, in the interest of justice, we think it proper to set aside the issue in dispute to the file of the AO to decide the same afresh, after making independent inquiry and verification, as deem fit. However, the Assessee is also directed to submit all the necessary documents, as asked by the AO during the assessment proceedings and fully cooperate with the AO and did not take any unnecessary adjournment. Accordingly, the issue in dispute is set aside to the file of the AO with the aforesaid directions. Appeal filed by the Revenue stands allowed for statistical purposes.

Summary

Issues:
1. Addition of unexplained cash credit under section 68 of the Income Tax Act.
2. Validity of the assessment order passed by the AO.
3. Assessment of the genuineness of transactions with Ayushi Stock Brokers (P) Ltd.

Analysis:
1. The issue in question pertains to the addition of ?1,13,83,772 as unexplained cash credit under section 68 of the Income Tax Act. The AO added this amount to the assessee's income based on a sham transaction of accommodation entry involving M/s. Ayushi Stock Brokers(P) Ltd. The Investigation Wing of the Department confirmed this as a sham transaction, and the assessee failed to provide any evidence to the contrary. However, the Ld. CIT(A) found that the transactions with Ayushi Stock Brokers (P) Ltd. were genuine business transactions, supported by evidence such as broker's notes and bank statements. The Ld. CIT(A) concluded that the AO did not provide any material to prove that the money received was the assessee's undisclosed income, thus deleting the addition under section 68.

2. The AO passed the assessment order under section 143(3)/148 of the Income Tax Act, relying on the Investigation Wing's report that labeled the transaction as a sham entry. In contrast, the Ld. CIT(A) found the transactions to be genuine and criticized the AO for not conducting an independent inquiry or verifying the evidence provided by the assessee. The Tribunal set aside the issue to the AO for fresh consideration, directing the assessee to submit all necessary documents and cooperate fully. The Tribunal emphasized the importance of independent inquiry by the AO rather than solely relying on external reports.

3. The crux of the matter lies in the genuineness of the transactions with Ayushi Stock Brokers (P) Ltd. The AO considered the transaction as non-genuine based on the Investigation Wing's report, while the Ld. CIT(A) found the evidence provided by the assessee to be sufficient to establish the genuineness of the transactions. The Tribunal highlighted the lack of independent inquiry by the AO and the importance of the assessee's cooperation in providing necessary documentation. The matter was remanded back to the AO for a fresh decision after conducting a thorough and independent verification process.

In conclusion, the Tribunal allowed the Revenue's appeal for statistical purposes, setting aside the issue to the AO for a fresh determination with directions to conduct an independent inquiry and for the assessee to cooperate fully in providing necessary documentation.