2018 (12) TMI 1410 - AT - Income Tax

Unexplained cash credit u/s 68 - unexplained share application money received during the assessment year - no occasion to cross-examination of the entry providers by assessee - Held that - The glaring feature of the assessment proceedings conducted by the learned assessing officer is that that he has grossly relied upon the investigation, carried out by the investigation wing Kolkata on the basis of the statement of Shri Rajesh Kumar Agarwal and Shri Rakesh Bansal recorded by the Deputy Director of income tax (investigation), New Delhi and the copies of such statements were not provided to the assessee. When the copy itself was not provided of the statement recorded of the above persons, based on which the allegation of the revenue that the share applicants are accommodation entry providers, the assessee did not have any opportunity to rebut those averments made by them. The assessee did not have any occasion to ask for the cross-examination of those entry providers, unless the statement was provided to the assessee. As per principle of natural justice, it was obligatory on the part of AO to have provided all the materials, which were used by him against the assessee. In case, the assessing officer was relying on the statement of different persons then the assessee will have to be given an opportunity to cross-examine them and rebut averments made by them. In such cases, otherwise additions cannot be sustained. No offer was made by the learned departmental representative that the copies of the statement of those persons or their cross-examination would be afforded by the revenue now; we do not have any option but to delete the addition made by the learned assessing officer on this count itself. No option but to reverse the finding of the lower authorities and direct the learned assessing officer to delete the addition made under section 68 - decided in favour of assessee.

Issues Involved:
1. Legality of the CIT (A)'s order.
2. Justification of the addition of ?5,00,00,000 under Section 68 of the Income Tax Act.
3. Adequacy of opportunity provided during assessment proceedings.
4. Consideration of submitted documents proving the identity, genuineness, and creditworthiness of investing companies.
5. Reliance on statements and inquiries without providing the assessee an opportunity for rebuttal.

Issue-wise Detailed Analysis:

1. Legality of the CIT (A)'s Order:
The assessee contended that the CIT (A)'s order is "bad in law." The Tribunal examined the process and found that the CIT (A) held that during the search and survey operations, the appellant was given sufficient opportunity to be heard and was confronted with all relevant facts and documents. Therefore, the Tribunal upheld the legality of the CIT (A)’s order.

2. Justification of the Addition of ?5,00,00,000 Under Section 68:
The core issue was whether the addition of ?5,00,00,000 as unexplained cash credit under Section 68 was justified. The Tribunal noted that the assessee had submitted confirmations, income tax returns, balance sheets, bank statements, and other relevant documents for the 13 companies that invested in its share capital. The AO, however, was dissatisfied with these submissions and relied heavily on inquiries conducted by the Investigation Wing, which indicated that the investing companies were mere conduits for accommodation entries. The Tribunal found that the AO did not conduct any independent inquiries or summon the directors of the investing companies. The Tribunal concluded that the AO failed to prove that the investments were not genuine, especially since the assessee had discharged its initial burden of proof.

3. Adequacy of Opportunity Provided During Assessment Proceedings:
The assessee argued that a proper and reasonable opportunity was not provided during the assessment proceedings. Specifically, the assessee was asked to produce the directors of the investing companies only at the fag end of the assessment proceedings, and the AO relied on statements and inquiries without confronting the assessee with these findings. The Tribunal agreed that the AO should have provided copies of the statements and findings from the Investigation Wing to the assessee for rebuttal. The Tribunal emphasized the principle of natural justice, which mandates that all materials used against the assessee must be provided for rebuttal.

4. Consideration of Submitted Documents Proving Identity, Genuineness, and Creditworthiness:
The assessee submitted various documents to prove the identity, genuineness, and creditworthiness of the investing companies. The AO issued notices under Section 133(6) to some companies, and seven companies responded with the required documents. Despite this, the AO concluded that the companies failed to prove their creditworthiness and the genuineness of the transactions. The Tribunal found that the AO did not conduct further inquiries to verify the documents or the financial status of the companies. The Tribunal held that the AO's reliance on the Investigation Wing's findings without independent verification was insufficient to justify the addition under Section 68.

5. Reliance on Statements and Inquiries Without Providing an Opportunity for Rebuttal:
The AO relied heavily on statements from the Investigation Wing and inquiries conducted in Kolkata, without providing these to the assessee for rebuttal. The Tribunal highlighted that the assessee was not given copies of the statements or an opportunity to cross-examine the individuals whose statements were used against it. This lack of opportunity to rebut the evidence was against the principles of natural justice. The Tribunal cited relevant case law, including the Delhi High Court and Supreme Court decisions, which emphasize the need for the AO to provide an opportunity for rebuttal when relying on third-party statements.

Conclusion:
The Tribunal concluded that the AO did not conduct adequate independent inquiries and relied excessively on the Investigation Wing's findings without providing the assessee an opportunity for rebuttal. The Tribunal directed the AO to delete the addition made under Section 68, thereby allowing the appeal filed by the assessee. The judgment emphasized the importance of adhering to principles of natural justice and the need for the AO to conduct thorough and independent inquiries before making additions under Section 68.

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