2020 (11) TMI 456 - AT - Income Tax

Addition u/s 68 - allegation of providing the accommodation entries in the form of share capital, bogus purchases, bogus sales and the bogus investments through the companies - non-compliance of summons issued by the AO u/s 131 - Reopening of assessment - HELD THAT - Merely because summons issued to some of the creditors could not be served or they failed to attend before the AO, cannot be a ground to treat the loans taken by the assessee from those creditors as non-genuine and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the AO u/s 131, by the alleged creditors will not be sufficient to draw an adverse inference against the assessee. As inferred that the principle, which is made applicable to addition under Section 68 is that the initial onus in on the assessee to discharge by producing the evidence which is required of him and once the assessee produces the evidence which is in his power and possession and which evidence prima facie proves the - (i) identity of the creditor; (ii) the capacity/creditworthiness of the creditor to advance the money; and (iii) the genuineness of the transaction, the onus shifts to the AO to make further inquiries. AO cannot perfunctorily reject the evidence produced and has to state cogent reasons for such rejection. Notice under Section 148 of the Act was issued dated 30th March 2016 and the time available with the AO for the completion of the assessment under Section 147 was up to 31stDecember 2016. In other words the available time with the AO was of 9 months from the date of the issue of notice under Section 148 of the Act for the completion of the assessment under Section 147 - Admittedly, the Department was also aware of the time available with it for the completion of the assessment. Accordingly, it was expected from the Department to Act swiftly for completing the assessment by making necessary enquiries within the time prescribed under the law and not to carry the matter till the fag-end of the assessment. What is transpired is that the revenue has not given enough time to the case on hand despite having the necessary powers and other supporting machineries. But the question arises, the assessee should be suffered on account of the inefficiency of the Department. The answers stands in negative. It is because the assessee should not be suffered on account of the inefficiency of the Income Tax Department. Transaction for transferring the shares as discussed above has taken place in the subsequent years. This transaction can create a doubt/suspicion about the genuineness of the transactions but this is not sufficient enough to treat the share capital as unexplained cash credit under Section 68 of the Act for the reasons that the AO has not provided sufficient opportunity to the assessee which has been discussed in detail in the preceding paragraph. Moreover, there can be change in the facts and circumstances in the year when the company has issued shares at premium viz a viz the year in which the director has acquired shares from the said companies. Appeal filed by the Revenue is dismissed.

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act.
2. Violation of principles of natural justice.
3. Discharge of onus under Section 68 by the assessee.
4. Validity of assessment proceedings under Section 147.
5. Relevance of third-party statements and cross-examination.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68 of the Income Tax Act:
The primary issue raised by the Revenue was the deletion of the addition of ?29,82,89,600/- under Section 68 of the Act by the CIT(A). The assessee had issued equity shares at a premium, and the AO treated the share capital as unexplained cash credit. The CIT(A) deleted the addition, noting that the assessee had provided sufficient details to establish the identity, creditworthiness, and genuineness of the transactions. The AO failed to disprove the documents filed by the assessee or point out any specific defects. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had discharged its onus under Section 68 by providing necessary details and that the AO did not conduct sufficient enquiries to rebut the evidence.

2. Violation of Principles of Natural Justice:
The Revenue contended that the CIT(A) erred in deleting the addition on the ground of violation of natural justice. The CIT(A) observed that the AO did not provide the assessee with the opportunity to cross-examine Shri Partik R. Shah, whose statement was the basis for the addition. The Tribunal noted that the principles of natural justice require that the assessee be allowed to cross-examine witnesses whose statements are used against them. The failure to provide this opportunity rendered the order invalid. The Tribunal cited various judgments, including those of the Hon'ble Supreme Court and High Courts, to support this view.

3. Discharge of Onus under Section 68 by the Assessee:
The assessee provided details such as PAN, CIN, MOA/AOA, confirmation of the parties, and bank extracts to support the transactions. The Tribunal noted that the initial onus is on the assessee to establish the identity, creditworthiness, and genuineness of the transactions. Once this onus is discharged, the responsibility shifts to the AO to prove it wrong. The Tribunal found that the assessee had discharged its onus, and the AO did not provide any contrary evidence to disprove the details furnished by the assessee.

4. Validity of Assessment Proceedings under Section 147:
The AO initiated income escapement proceedings under Section 147 based on a letter from the DDIT (Inv) Unit-1, Ahmedabad, which mentioned a search conducted at the premises of Shri Partik R. Shah. The Tribunal noted that the notice under Section 148 was issued on 30th March 2016, and the assessment was completed within a period of 24 days. The Tribunal emphasized that the Department should act swiftly and not delay the assessment process. The Tribunal also highlighted that the assessee should not suffer due to the inefficiency of the Department.

5. Relevance of Third-Party Statements and Cross-Examination:
The AO relied on the statement of Shri Partik R. Shah, who admitted to providing accommodation entries. However, the AO did not provide the assessee with the opportunity to cross-examine Shri Partik R. Shah. The Tribunal cited several judgments to emphasize the importance of cross-examination in ensuring the principles of natural justice. The Tribunal concluded that the failure to provide this opportunity invalidated the addition made by the AO.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition under Section 68, emphasizing the importance of adhering to the principles of natural justice and providing the assessee with the opportunity to cross-examine witnesses. The Tribunal found that the assessee had discharged its onus under Section 68 by providing necessary details, and the AO failed to disprove the evidence or conduct sufficient enquiries. The Tribunal dismissed the Revenue's appeal and directed the AO to delete the addition.

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