2016 (2) TMI 985 - AT - Income Tax

Receipt of accommodation entries - Held that - In the case in hand it was not mere transfer of money by these share applicants to the assessee but the assessee has produced on record the board s resolution share applicants form copy of share transfer deeds and information from the Registrar of Companies in respect of the share applicants. It established the existence of real transaction of transfer of shares and therefore it rebuts the case of the Revenue of alleged accommodation entries. Once the assessee has established the existence of the transaction of transfer of shares against the received of share application money then the burden is shifted on the Assessing Officer to conduct the necessary enquiry and investigation to disapprove the evidence produced on record by the assessee. The Assessing Officer did not choose to conduct any enquiry or investigation during the assessment proceeding but relied upon the statement of Shi Mahesh Garg and the report of the Investigation Wing therefore the addition made by the Assessing Officer merely on the basis of a statement recorded by the Investigation Wing without any corroborative evidence and examination and cross-examination of the assessee is not sustainable. Therefore no error or illegality in the order of the learned Commissioner of Income-tax (Appeals) in deleting the addition in question. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of proceedings initiated under section 147 of the Income-tax Act.
2. Deletion of the addition of Rs. 78,00,000 made under section 68 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Validity of proceedings initiated under section 147 of the Income-tax Act:

The Revenue challenged the order of the Commissioner of Income-tax (Appeals) [CIT(A)] which quashed the proceedings initiated under section 147. The CIT(A) held that the reopening of the assessment was not valid. The Revenue argued that the reopening was based on credible information from the Investigation Wing, which indicated that the assessee received accommodation entries amounting to Rs. 73 lakhs during the financial year 2002-03. The Assessing Officer (AO) issued a notice under section 148, believing that the amount represented income that had escaped assessment. The CIT(A) found that the AO did not conduct any independent enquiry to corroborate the information provided by the Investigation Wing. The Tribunal agreed with the CIT(A) and held that the AO failed to make any effort to verify the information independently and merely relied on the Investigation Wing's report. Thus, the Tribunal upheld the CIT(A)'s decision, finding the reopening invalid.

2. Deletion of the addition of Rs. 78,00,000 made under section 68 of the Income-tax Act:

The AO made an addition of Rs. 78,39,000 to the assessee's income, treating it as unexplained cash credit under section 68. This included Rs. 78,00,000 as accommodation entries and Rs. 39,000 as commission. The CIT(A) deleted this addition, and the Revenue appealed against this deletion. The Tribunal examined whether the assessee had discharged its burden of proving the identity, creditworthiness, and genuineness of the transactions. The assessee produced various documents, including confirmation letters, bank statements, income tax returns, and affidavits of the directors of the subscriber companies. The AO, however, relied on the statement of Shri Mahesh Garg, recorded by the Investigation Wing, which indicated that the entities providing the entries were non-genuine.

The Tribunal noted that the AO did not conduct any independent enquiries or provide the assessee an opportunity to cross-examine Shri Mahesh Garg. The Tribunal emphasized that any adverse inference based on material collected behind the back of the assessee without cross-examination is not valid. The Tribunal cited several judgments, including those of the Supreme Court and High Courts, supporting the principle that the AO must conduct proper enquiries and cannot rely solely on statements recorded by the Investigation Wing. The Tribunal found that the AO failed to disprove the evidence provided by the assessee and did not make any effort to verify the genuineness of the transactions independently.

The Tribunal concluded that the AO's addition was not sustainable as it was based solely on the statement of Shri Mahesh Garg without any corroborative evidence. The Tribunal upheld the CIT(A)'s decision to delete the addition, finding no error or illegality in the order.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both the validity of the reopening under section 147 and the deletion of the addition under section 68. The Tribunal emphasized the necessity of independent enquiry and the opportunity for cross-examination to uphold the principles of natural justice.