2016 (2) TMI 400 - AT - Income Tax

Addition u/s 68 - CIT(A) deleted the addition - information on accommodations entries received from the Directorate of Income Tax (Investigation) - Held that - AO in his remand report has admitted that he has heavily relied on the inputs of investigation wing which piece of evidence was not admittedly given to the assessee during the time of the assessment proceedings which amounts to violation of natural justice. If the AO was heavily relying on the Investigation Wing Report then he was duty-bound to have provided a copy of the same to the assessee so that he can rebut or bring evidences to prove his case. When out of 23 shareholders 19 shareholders identity, creditworthiness and genuineness were proved with the same set of documents, taking out 4 parties to make an addition of ₹ 70 lakhs out of ₹ 4.20 crores has been made u/s 68 of the Act cannot be sustained. The CIT (A) has also rightly taken note that no adverse comments were made by the AO on the merit of the case and did not cast any finding that whether the documents furnished by the assessee to prove identity, creditworthiness and genuineness of the 4 shareholders were bogus or fabricated. In the light of the above, we find that the ld. CIT (A) has rightly discussed a number of judicial precedents to delete the addition made by the AO. So, therefore, we do not find any infirmity in the order passed by the ld. CIT (A) - Decided against revenue

Summary

Issues Involved:

1. Deletion of addition of Rs. 70,00,000/- made by the AO on account of unexplained cash credit under Section 68 of the Income Tax Act, 1961.
2. Deletion of addition of Rs. 1,40,000/- made by the AO on account of 2% commission.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 70,00,000/- under Section 68:

The assessee, engaged in the infrastructure business, declared a total income of Rs. 11,43,594/- for the assessment year 2007-08. The case was selected for scrutiny, and the Assessing Officer (AO) observed an increase in the share capital and share premium account. The AO requested details to prove the identity, creditworthiness, and genuineness of the parties to whom shares were allotted. The assessee provided a list of 23 parties, but the AO noted that four parties were involved in providing accommodation entries as per the Directorate of Income Tax (Investigation), New Delhi.

The AO issued summons under Section 131 to these four parties, but they did not appear personally. Written submissions were received, but without balance sheets and ITRs. The AO concluded that these parties were non-existent and engaged in providing accommodation entries, treating Rs. 70,00,000/- as unexplained credit under Section 68.

The CIT (A) deleted the addition, noting that the assessee had provided sufficient documentation, including PAN cards, share application forms, bank statements, and balance sheets. The CIT (A) emphasized that the AO had accepted similar details for 19 other parties and had not provided the assessee with the Investigation Wing's report, violating the rule of audi alteram partem. The CIT (A) cited several judicial precedents, including CIT v. Lovely Exports (P) Ltd., which held that if the identity of the shareholders is established, the revenue can proceed against the shareholders individually.

The Tribunal upheld the CIT (A)'s decision, noting that the AO had not provided any material evidence to disprove the assessee's claims and had relied heavily on the Investigation Wing's report without giving the assessee an opportunity to rebut it. The Tribunal found no infirmity in the CIT (A)'s order and dismissed the revenue's appeal.

2. Deletion of Addition of Rs. 1,40,000/- on Account of 2% Commission:

The AO observed that entry operators charged a commission of 2% for providing accommodation entries, which was not booked by the assessee. Consequently, the AO added Rs. 1,40,000/- to the assessee's income as unaccounted commission.

The CIT (A) deleted this addition, as the AO had not provided any evidence to support the claim that the assessee paid such a commission. The Tribunal agreed with the CIT (A), noting that the AO had failed to substantiate the addition with any material evidence.

Conclusion:

The Tribunal dismissed the revenue's appeal, upholding the CIT (A)'s order to delete the additions of Rs. 70,00,000/- under Section 68 and Rs. 1,40,000/- on account of commission. The Tribunal emphasized the importance of providing the assessee with an opportunity to rebut evidence and the necessity of the AO to bring material evidence on record to support any additions.