2018 (5) TMI 1375 - AT - Income Tax

Validity of the order passed U/s 147 - accommodation entries taken by the assessee company - receipt of specific information from Investigation Wing, Delhi regarding accommodation entries taken by the assessee company - Held that - The belief formed by the AO after due examination of the material on record that the income of the assessee chargeable to tax during the relevant assessment year has escaped assessment cannot be said to be arbitrary or irrational. Therefore, it is not a case of borrowed satisfaction as contended by the ld AR. There is no bar that the information received from the Investigation wing cannot be used as a basis for formation of belief and satisfaction by the AO that the income has escaped assessment. In view of the above discussions and in the entirety of facts and circumstances of the case, we are of the considered view that there is no illegality in action of the AO in assuming jurisdiction and passing the order under section 147 - Decided against assessee Addition u/s 68 - Held that - As being the reassessment proceedings, where the AO is ceased of certain information and documents, it is incumbent upon him to confront the same to the assessee and allow the latter to file its objections and rebuttal. The additions made, merely relying on these information and documentation, without confronting the assessee cannot be accepted. Besides furnishing the reasons for reopening the assessment to the assessee company, there is nothing on record that such information/documentation was confronted to the assessee. Further, the AO has relied upon the statement of third parties namely, shri S.K. Jain, shri V.K. Jain, shri Assem Kumar Gupta and shri Rajesh Agarwal, the assessee again deserves an opportunity to cross examine such persons which was not provided. No nexus has been established by the Revenue and the suspicion however strong cannot be basis for making the addition. Therefore, no presumption can be drawn without establishing the necessary nexus that share application money received is assessee s own undisclosed money. We don t find any basis for making addition under section 68 of the Act and the findings of the CIT(A) are hereby confirmed. - Decided in favour of assessee.

Issues Involved:
1. Validity of the order passed under Section 147 of the Income Tax Act, 1961.
2. Deletion of addition made under Section 68 of the Income Tax Act, 1961 on account of unexplained cash credit in the form of share capital.

Detailed Analysis:

1. Validity of the Order Passed Under Section 147 of the Income Tax Act, 1961:

The assessee challenged the reopening of the assessment under Section 147, arguing that the notice under Section 148 was issued solely based on information from the Investigation Wing without the Assessing Officer (AO) applying his own mind. The AO had recorded reasons indicating that the assessee had received accommodation entries amounting to ?15,00,000 from Fine Finance & Leasing Pvt. Ltd. and Creative Capital Services Ltd. The assessee contended that the AO did not verify whether these amounts were reflected in the assessee’s accounts and relied on borrowed satisfaction from the Investigation Wing.

The Revenue argued that the AO had specific information and, after due application of mind, formed a belief that income had escaped assessment. The Tribunal referred to a similar case (M/s Choice Buildestate Private Limited) where it was held that the AO’s belief that income had escaped assessment was neither arbitrary nor irrational, given the specific details of accommodation entries.

The Tribunal concluded that the AO had specific information regarding accommodation entries taken by the assessee and had formed a prima facie view that income had escaped assessment. This view was not arbitrary or irrational, and there was a rational nexus between the reasons and the belief that income had escaped assessment. Therefore, the reopening of the assessment under Section 147 was justified, and the cross-objection by the assessee was dismissed.

2. Deletion of Addition Made Under Section 68 of the Income Tax Act, 1961 on Account of Unexplained Cash Credit in the Form of Share Capital:

The Revenue challenged the deletion of the addition of ?66,00,000 made under Section 68 on account of unexplained cash credit in the form of share capital. The AO had added this amount, citing information from the Investigation Wing that the assessee had received accommodation entries from bogus companies operated by Sh. S.K. Jain and Sh. V.K. Jain.

The CIT(A) deleted the addition, noting that the assessee had provided confirmations and bank statements for the share application money received from eight different concerns. The CIT(A) observed that the AO had not found any adverse evidence during reassessment proceedings and had made the addition based on preconceived notions without proper examination of the documents submitted by the assessee.

The Tribunal referred to its decision in M/s Choice Buildestate Pvt. Ltd., where it was held that the AO should examine the documents submitted by the assessee and carry out further investigation before making any addition. In the present case, the assessee had submitted detailed documentation, including share application forms, bank statements, and confirmations from the investor companies. The AO had not taken any efforts to examine these documents or conduct further investigation.

The Tribunal noted that the AO had not confronted the assessee with the information received from the Investigation Wing or provided an opportunity to cross-examine the persons whose statements were relied upon. The Tribunal emphasized that the AO cannot merely reject the explanation provided by the assessee without proper verification or enquiry.

The Tribunal concluded that there was no falsity found in the documents submitted by the assessee to prove the identity, creditworthiness, and genuineness of the share transactions. Therefore, the addition made under Section 68 was not justified, and the findings of the CIT(A) were confirmed. The appeal by the Revenue was dismissed.

Conclusion:

The Tribunal upheld the validity of the reopening of the assessment under Section 147, dismissing the assessee’s cross-objection. However, it confirmed the deletion of the addition made under Section 68, dismissing the Revenue’s appeal. The Tribunal emphasized the need for proper examination and investigation by the AO before making any addition based on information from the Investigation Wing.

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