2018 (11) TMI 1540 - AT - Income Tax

Validity of reopening of assessment - Addition u/s. 68 towards unexplained cash credit - Held that - We find that on what basis and on examination of what fact and figure in the records, the CIT(A) has given a finding that the capacity of the shareholders is also not in doubt, is not comprehendible. Though the CIT(A) has referred to several case laws from the ITAT, he has not at all referred to the proposition in the said case law and how they are applicable to the facts of the present case. On the overall consideration of the entire conspectus of the case, we are of the considered opinion that the CIT(A) has passed a very cryptic order both on the validity of the reopening and the merits of the case. It is settled law that even the administrative orders have to be consistent with the rules of natural justice. In our considered opinion, it was incumbent upon the ld. CIT(A) to pass a speaking order on both the issue of validity of reopening and the merits of the case. Hence, in our considered opinion, the interest of justice will be served if both the issue of validity of reopening and merits of the addition are remitted to the file of the ld. CIT(A) for fresh adjudication by passing a speaking order on the subject. - Revenue s appeal and the assessee s cross objection are allowed for statistical purposes.

Summary

Issues Involved:
1. Validity of reopening the assessment under section 147 read with section 148 of the Income Tax Act, 1961.
2. Deletion of addition towards "unexplained cash credit" under section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment:

The assessee challenged the reopening of the assessment by invoking the provisions of section 147 read with section 148 of the Income Tax Act, 1961. The assessee argued that the notice issued under section 148 and the reopening of the assessment under section 147 were bad in law, illegal, ultra vires, and contrary to the provisions of the Income Tax Act. The Assessing Officer (A.O.) had observed that the case was reopened as the assessee received a huge share premium amounting to ?14,74,78,500/- during the financial year 2008-09. The A.O. held that the creditworthiness of the investor, M/s. Omkar Energy Pvt. Ltd., was not satisfactorily explained. The Commissioner of Income Tax (Appeals) [CIT(A)] dismissed the assessee's challenge to the validity of the reopening in a summary manner, stating that the A.O. had tangible material and that the transaction was sham. However, the CIT(A) did not provide detailed reasoning or reference to the tangible material or reasons for reopening.

2. Deletion of Addition towards "Unexplained Cash Credit":

The Revenue appealed against the CIT(A)'s decision to delete the addition of ?14,74,78,500/- made by the A.O. under section 68 towards "unexplained cash credit." The A.O. had held that the assessee was unable to justify the charging of a huge premium on the allotment of shares and that the transaction remained unexplained. The CIT(A) summarily dealt with the merits of the case, holding that the assessee company had explained the source and nature of the share premium received and the creditworthiness of the investor. The CIT(A) noted that the investor company, Omkar Energy Pvt. Ltd., was a wholly-owned subsidiary of Omkar Realtors & Developers Pvt. Ltd., both of which were profit-making companies regularly assessed to income tax. The CIT(A) concluded that the share premium receipt was a commercial decision of the Board of Directors and that the assessee had discharged its onus to establish the identity, genuineness of the transaction, and the capacity of the lender or depositor.

Tribunal's Findings:

The Tribunal found that the CIT(A) had passed a very cryptic order both on the validity of the reopening and the merits of the case. The Tribunal noted that the CIT(A) did not provide detailed reasoning or reference to facts and figures from the balance sheet of the investor company to support the conclusion that the creditworthiness was justified. The Tribunal emphasized that even administrative orders must be consistent with the rules of natural justice and that the CIT(A) should have passed a speaking order on both the validity of the reopening and the merits of the case.

Conclusion:

The Tribunal remitted both the issues of validity of reopening and the merits of the addition to the file of the CIT(A) for fresh adjudication by passing a speaking order on the subject, ensuring that the assessee is granted adequate opportunity of being heard. The Revenue's appeal and the assessee's cross-objection were allowed for statistical purposes.