2017 (11) TMI 507 - AT - Income Tax

Undisclosed income on account of bogus share transaction - addition on account of commission on such undisclosed income - AO has recorded in his finding that assessee has not furnished the report under Form 10DB in support of Security Transaction Tax - as per assessee no independent investigation was carried out by AO before making addition - Held that - Assessing Officer has passed the assessment order without giving any finding on the submission and documentary evidences furnished by assessee. The Assessing Officer has relied upon the statement of Mukesh Choksi. No opportunity of cross-examination was provided to the assessee nor was the copy of statement given to assessee on which the Assessing Officer relied. Considering the decision of Hon ble Apex Court in case of ITO vs. M. Pirai Choodi (2010 (11) TMI 26 - Supreme Court of India), we deem it appropriate to restore the ground no. 5,6 &7 to the file of Assessing Officer to decide the same afresh in accordance with law. Appeal filed by the assessee is allowed for statistical purpose

Issues Involved:
1. Reopening of Assessment
2. Violation of Natural Justice
3. Addition of ?1,13,76,636 as Undisclosed Income
4. Addition of ?5,68,832 towards Alleged Commission Paid
5. Penal Interest under Sections 234A, 234B, and 234C

Issue-wise Detailed Analysis:

1. Reopening of Assessment:
The assessee challenged the reopening of the assessment under Section 147 of the Income Tax Act, arguing that it was based on conjectures, surmises, and assumptions without tangible material. The assessee also contended that the Assessing Officer (AO) did not furnish the recorded reasons for reopening the case, thus failing to follow due process. However, during the hearing, the assessee's Authorized Representative (AR) stated that they were not pressing this ground, and the Tribunal dismissed it accordingly.

2. Violation of Natural Justice:
The assessee argued that the CIT(A) upheld the assessment order without providing a copy of the statement of Mr. Mukesh Choksi, which was the basis for reopening the assessment. Furthermore, no opportunity for cross-examination was granted despite specific requests. The Tribunal noted that the AO relied on the statement of Mukesh Choksi without providing it to the assessee or allowing cross-examination, which violated principles of natural justice. The Tribunal emphasized the need for the AO to consider the documentary evidence provided by the assessee and to grant an opportunity for cross-examination.

3. Addition of ?1,13,76,636 as Undisclosed Income:
The AO added ?1,13,76,636 to the assessee's income, treating it as undisclosed income from bogus share transactions. The assessee contended that the transactions were genuine and supported by evidence, including bank statements and Form 10DB. The Tribunal observed that the AO did not independently investigate the evidence provided by the assessee and relied solely on the statement of Mukesh Choksi. The Tribunal found that the AO failed to provide a copy of the statement or allow cross-examination, thus violating natural justice principles. The Tribunal restored the matter to the AO for fresh consideration, directing the AO to provide all material used against the assessee and to consider the documentary evidence submitted.

4. Addition of ?5,68,832 towards Alleged Commission Paid:
The AO added ?5,68,832, assuming a 5% commission on the alleged accommodation entries. The assessee argued that this addition was based on assumptions and conjectures without any supporting evidence. The Tribunal noted that the AO made this addition without any independent verification or consideration of the assessee's submissions. The Tribunal restored this issue to the AO for fresh adjudication, emphasizing the need for a thorough review of the evidence and granting the assessee an opportunity to present their case.

5. Penal Interest under Sections 234A, 234B, and 234C:
The assessee contested the penal interest levied under Sections 234A, 234B, and 234C. The Tribunal stated that this issue was consequential and did not require separate adjudication, as it would depend on the final outcome of the reassessment proceedings.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, restoring the issues related to the addition of undisclosed income and commission to the AO for fresh consideration. The AO was directed to provide the assessee with all relevant material, allow cross-examination, and consider the documentary evidence submitted by the assessee. The issue of penal interest was deemed consequential and did not require separate adjudication. The Tribunal emphasized the importance of adhering to principles of natural justice throughout the reassessment process.

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