2020 (2) TMI 317 - AT - Income Tax

Addition u/s 68 - why the investors are not answering all the queries along with documents to establish their identity and creditworthiness and also genuineness of the transactions? - HELD THAT - Respectfully following the decision of co-ordinate bench in assessee group company case, we are of the considered view that the identity, genuineness of transaction and creditworthiness of subscribers has been proved as required u/s 68 of the Act. We, therefore, direct the Ld. AO to delete additions made towards share capital and consequent commission u/s 68 - Decided in favour of assessee Assessment u/s 153A - Addition u/s 14A r.w.s.Rule 8D - HELD THAT - Deletion of additions made by the Ld. AO u/s 14A r.w.s.Rule 8D of I.T.Rules, 1962, on the ground that in absence of incriminating material found as a result of search no additions could be made in the assessments framed u/s 143(3) r.w.153A - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of additions made under Section 143(3) read with Section 153A of the Income-tax Act, 1961.
2. Addition of ?80,00,000/- under Section 68 of the Income-tax Act, 1961.
3. Addition of ?60,000/- for alleged unexplained expenditure.
4. Disallowance under Section 14A read with Rule 8D of the Income-tax Rules, 1962.
5. Violation of principles of natural justice.

Issue-wise Detailed Analysis:

1. Validity of Additions under Section 143(3) read with Section 153A:
The appeals concern the validity of additions made by the Assessing Officer (AO) under Section 143(3) read with Section 153A of the Income-tax Act, 1961. The AO made these additions following a search and seizure action conducted in the Anand Rathi Group. The Tribunal found that the AO's reliance on the search proceedings and post-search investigations was insufficient to justify the additions, especially since the assessee had provided substantial evidence to support its claims.

2. Addition of ?80,00,000/- under Section 68:
The AO added ?80,00,000/- to the assessee's income under Section 68, arguing that the assessee failed to prove the identity, genuineness, and creditworthiness of the share capital received from certain subscribers. The Tribunal noted that the assessee had provided comprehensive details, including names, addresses, PAN, bank statements, and financial statements of the subscribers. The Tribunal emphasized that the AO did not conduct further investigations or issue summons under Section 131, and thus, the addition was not justified. The Tribunal directed the AO to delete the addition, referencing various judicial precedents, including the Hon'ble Supreme Court's decision in CIT vs. Lovely Exports (P) Ltd.

3. Addition of ?60,000/- for Alleged Unexplained Expenditure:
The AO made an addition of ?60,000/-, estimating probable commission paid to hawala dealers for obtaining accommodation entries. The Tribunal found that since the primary addition under Section 68 was deleted, the consequent addition for commission was also incorrect. The Tribunal directed the AO to delete this addition as well.

4. Disallowance under Section 14A read with Rule 8D:
The AO disallowed ?38,882/- under Section 14A read with Rule 8D, attributing it to expenditure incurred in relation to exempt income. The Tribunal noted that the AO made this disallowance without any reference to incriminating material found during the search. Citing the Hon'ble Bombay High Court's decision in CIT vs. Continental Warehousing Corporation, the Tribunal held that in the absence of incriminating material, no additions could be made in assessments framed under Section 153A. Consequently, the Tribunal directed the AO to delete this disallowance.

5. Violation of Principles of Natural Justice:
The assessee argued that the order passed by the CIT(A) violated the principles of natural justice. The Tribunal observed that the AO and CIT(A) did not provide the assessee with an opportunity to cross-examine third parties whose statements were used against the assessee. The Tribunal reiterated the legal principle that any third-party information or statements relied upon to make additions must be provided to the assessee, along with an opportunity for cross-examination. This failure constituted a serious flaw, rendering the order null and void.

Conclusion:
The Tribunal allowed the appeals filed by the assessee, directing the AO to delete the additions made under Sections 68 and 14A, as well as the addition for alleged unexplained expenditure. The Tribunal emphasized the importance of adhering to the principles of natural justice and conducting thorough investigations before making additions.