2018 (9) TMI 960 - AT - Income Tax

Addition u/s. 68 - proof of transaction as genuine - Held that - Assessee failed to prove the three ingredients of section 68, i.e., identity of the creditors, creditworthiness thereof and genuineness of the transactions. Simply because the assessee received the amounts through cheques would not prove the transaction as genuine, as the nature of amount, i.e., being refund of the amounts already paid as advance for purchase of machinery, as stated by the assessee, does not stand proved by any cogent evidence on record. Te decision relied by the assessee in the case of Real Time Marketing Pvt. Ltd. 2008 (4) TMI 8 - HIGH COURT OF DELHI does not render any help to the assessee, as in the present case, the cash deposit in the bank accounts before issuing cheques, is not the sole ground for making addition u/s. 68 of the Act. As a result, the appeal of the assessee deserves to be dismissed. Penalty u/s 271(1)(c) r.w.s. 274 - non specification of charge - Held that - As gone through the notice dated 30.11.2009 issued by the Assessing Officer u/s. 271(1)(c) r.w.s. 274 of the Act which contains the offense committed by assessee as concealed the particulars of income or furnished the inaccurate parties of such income . In view of above narration of notice, the Assessing Officer was not specific as to the offense committed by the assessee. In the penalty proceedings, the Assessing Officer has imposed the penalty for concealing the particulars of income. Once, the Assessing Officer itself was not specific as to under which limb, the Assessing Officer was going to penalize the assessee or to seek explanation of the assessee, no penalty can be imposed against the assessee u/s. 271(1)(c) - Decided in favour of assessee

Issues Involved:
1. Validity of proceedings initiated under Sections 147/148 of the IT Act.
2. Justification of addition made under Section 68 of the IT Act.
3. Imposition of penalty under Section 271(1)(c) of the IT Act.

Detailed Analysis:

1. Validity of Proceedings under Sections 147/148:
The appellant's counsel admitted that the proceedings initiated under Sections 147/148 were legally valid. Consequently, the legal grounds challenging the jurisdiction to reopen the assessment were not pressed.

2. Justification of Addition under Section 68:
The primary issue was whether the authorities were justified in making and sustaining the addition of ?13,00,000 under Section 68 of the IT Act. The assessee contended that the amount received was a refund of advances paid for machinery, which were not supplied. The Assessing Officer (AO) noted discrepancies, such as the cheques issued by the assessee not appearing in the bank accounts of the alleged sellers and equivalent cash deposits made by these parties before issuing cheques to the assessee. The AO concluded that the transactions were accommodation entries and added ?13,00,000 as unexplained credit under Section 68.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition, emphasizing that the assessee failed to provide proof of the cheques being deposited in the sellers' accounts, evidence of the sellers being engaged in manufacturing or supplying machinery, or any correspondence confirming the transactions. The CIT(A) concluded that the assessee did not discharge its onus to explain the nature and source of the credits, thus confirming the addition under Section 68.

The Tribunal concurred with the lower authorities, noting that the assessee failed to rebut the findings and did not provide sufficient evidence to substantiate the transactions. The Tribunal emphasized the absence of proof regarding the cheques' credit in the sellers' bank accounts and the lack of evidence of any subsequent purchase of machinery. The Tribunal found no error in the authorities' decision to treat the transactions as accommodation entries and upheld the addition under Section 68.

3. Imposition of Penalty under Section 271(1)(c):
The penalty appeal was considered separately from the assessment proceedings. The Tribunal noted that the notice issued by the AO for penalty proceedings was not specific about the offense committed, i.e., whether it was for concealment of particulars of income or furnishing inaccurate particulars. The Tribunal cited a precedent where such ambiguity in the notice rendered the penalty proceedings invalid. Following this precedent, the Tribunal found the penalty notice to be bad in law and canceled the penalty imposed under Section 271(1)(c).

Conclusion:
The appeal challenging the addition under Section 68 was dismissed, while the appeal against the penalty under Section 271(1)(c) was allowed. The Tribunal upheld the addition of ?13,00,000 as unexplained credit but canceled the penalty due to procedural deficiencies in the penalty notice. The order was pronounced in the open court on 11th September 2018.

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