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2019 (5) TMI 539

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..... e it was not a case that any new and incriminating material was unearthed as a consequence of the second search carried out against the assessee u/s 132 in February 2013. We therefore find merit in the contention of the Ld. AR that no incriminating material was found against the assessee which was unearthed qua this assessment year for making the impugned disallowance - Decided in favour of assessee. Addition u/s 68 - whether there was any incriminating materials unearthed during the search qua the assessment year ? - HELD THAT:- no evidence was brought on record to prove that the cash deposited in bank accounts of entities forming part of this trail either belonged to the assessee company or originated from the assessee. Moreover, no material whatsoever was brought on record to demonstrate that the alleged cash deposit made in the bank accounts of third parties actually belonged to the assessee company or was provided by the assessee company. No opportunity to cross-examine any of these entities was provided to the assessee. The bank statements based on which the cash trail was prepared were part of the disclosed documents/accounts and therefore cannot be held as incriminating mat .....

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..... iption monies received from M/s. Mundat Securities & Services Pvt. Ltd for differential treatment. For the reasons discussed in detail in the foregoing therefore we also do not find any merit in the Ld. DR’s pleading to the effect that the matter needs to be restored to the file of the AO for decision afresh. This is particularly in view of the fact that in the orders u/s 153C/143(3), the AO of M/s. Mundat Securities & Services Pvt. Ltd had accepted the genuineness of the transaction and therefore it was not open for the same AO to question the genuineness of the receipt of monies in the hands of the appellant. We therefore direct the AO to delete the addition - Decided in favour of assessee. Addition of commission paid on obtaining accommodation entries in the form of share capital. - HELD THAT:- The impugned addition was made by the AO purely on suspicion and there was no material available on record to justify the same. We note that the AO was unable to correlate them with any incriminating document or evidence found in the course of search. Instead the addition was made purely on conjecture. We note that there is nothing on record to suggest that such expenditure .....

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..... s any live and direct nexus with any incriminating material unearthed during the search. Since the issue raised in Ground No. 1 goes to the root of the matter, we would like to adjudicate this issue first. 5. Brief facts of the case are that the assessee company filed its original return of income on 30.10.2007 declaring total income of ₹ 3,81,774/-. Search operations was conducted u/s. 132 of the Act in the assessee s premises on 03.05.2007. Consequent to the search the order u/s 153A/143(3) of the Act was passed for AY 2007-08 on 30.12.2009 assessing total income at ₹ 3,81,774/-. 6. Thereafter, second search u/s. 132 of the Act was conducted on 18.02.2013 and the Panchnama was drawn in the name of the assessee company. Subsequent thereto notice u/s 153A was issued asking the assessee to file return of income and in response the assessee filed return declaring total income of ₹ 3,81,774/- as earlier assessed. In the order passed u/s 153A/143(3) the AO made addition on account of short deduction of TDS of ₹ 8,97,950/- along with some other disallowances. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to give partial relief .....

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..... Kabul Chawla, wherein their lordships have held as under: Summary of legal position 37. On a conspectus of Section 153A(1) of the Act, read with provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the total income of the aforementioned six years in separate will be only one assessment order in respect of each of the six AYs in which both the disclosed and the undisclosed income would be brought to tax . iv. Although Section 153 A does not say that additions should be strictly made .....

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..... ; seizure did not disclose any incriminating material. In taking the aforesaid view, the Ld. ITAT relied upon the judgments of Delhi High Court in the case of CIT(A) Vs. Kabul Chawla in ITA No. 707/2014 dated 28.08.2014. The Court also observed that more or less an identical view has been taken by this Bench in ITA No. 661/2008 in the case of CIT Vs. Veerprabhu Marketing Limited. Considering the above facts, the Honorable High Court did not admit the appeal filed by the Department. It held as follows:- Subject matter of challenge is a judgement and order dated 18th December, 2015 by which the learned Tribunal dismissed an appeal preferred by the Revenue registered as ITA No.1775/Kol/2012 and allowed a cross-objection registered as CO-30/Kol/2013 both pertaining to the assessment year 2005-06. The learned Tribunal was of the opinion that the Assessing Officer had no jurisdiction under Section 153A of the Income Tax Act to reopen the concluded cases when the search and seizure did not disclose any incriminating material. In taking the aforesaid view, the learned Tribunal relied upon a judgement of Delhi High Court in the case of CIT[A] vs. Kabul Chawla in ITA No.707/2014 dated 28th A .....

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..... t no substantial question of law arose since there was a factual finding that no incriminating evidence related to share capital issued was found during the course of search and that the assessing officer was not justified in invoking section 68 of the Act for the purpose of making additions on account of share capital 12. In the light of the aforesaid ratio laid down by the Hon'ble High Courts, wherein, the Hon ble High Court held that in the absence of any incriminating materials, the completed assessment cannot be disturbed. We note that in respect of the disallowance made u/s 40(a)(ia) the Ld. CIT(A) did not uphold it on merits and against which the Revenue is not in appeal before us. In the circumstances the material issue to be decided is whether AO was permitted to make the disallowance merely because the AO was authorized to frame the assessment for the year under consideration u/s 153A of the Act. We note that for making this disallowance the AO has only taken note of the TAN details available in the ITS data for FY 2006-07 relevant to AY 2007-08 and found that TDS amount of ₹ 20,150/- had not been paid by the company. Based on such information the AO issued show .....

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..... original return Date of original assessment Asst. Completed u/s. Whether assessment pending on date of search/ abated (1) (2) (3) (4) (6) 2008-09 29.09.2008 31.12.2009 154/143(3) No 2009-10 29.09.2009 28.04.2011 143(3) No 2010-11 14.10.2010 30.12.2011 143(3) No 2011-12 29.09.2011 No regular assessment (time imit for issue of 143(2) dt.30.09.2012 No 2012-13 - Yes 2013-14 - Yes In the aforesaid appeals, the common ground no. 1 raised by the assessee is that the AO had no jurisdiction to disturb the original assessment completed on dates given above u/s. 153A in absence of any incriminating material found in the course of search and when no proceedings were pending before him for the AYs 2008-09 to 2011-12. From the foregoing statement we note that for the AYs 2008-09 to 2010-11, the regular assessments were completed u/s 143(3) much before the search u/s 132 was carried out in 18.02.2013 and as such there is no ambiguity as to the fact that these assessments had not abated. Even with regard to the AY 2011-12 we note that the return of income was filed on 29.09.2011 and the proceedings for regular assessment could have been started by the AO by serving notice u/s 143(2) on or before .....

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..... ing the various judgments of different High Courts laid down the following legal proposition in terms of scope of addition which can be made u/s. 153A(1) which are as under:- 37. On a conspectus of Section 153A (1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each o .....

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..... jarat High Court reiterated the above legal position following its earlier decision in Principal Commissioner of Income Tax v. Saumya Construction P. Ltd. {supra) and of this Court in Kabul Chawla (supra). As far as Karnataka High Court is concerned, it has in CIT v. IBC Knowledge Park P. Ltd. {supra) followed the decision of this Court in Kabul Chawla (supra) and held that there had to be incriminating material qua each of the AYs in which additions were sought to be made pursuant to search and seizure operation. The Calcutta High Court in CIT-2 v. Salasar Stock Broking Ltd. {supra), too, followed the decision of this Court in Kabul Chawla (supra). In CIT v. Gurinder Singh Bawa {supra), the Bombay High Court held that: 6...once an assessment has attained finality for a particular year, i.e., it is not pending then the same cannot be subject to tax in proceedings under section 153A of the Act. This of course would not apply if incriminating materials are gathered in the course of search or during proceedings under section 153A of the Act which are contrary to and/or not disclosed during the regular assessment proceedings. 63. Even this Court has in CIT v Mahesh Kumar Gupta {supra) .....

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..... missible unless the AO established some tangible and cogent nexus with any incriminating evidence or material found or unearthed qua the assessee, qua the assessment year as a result of search conducted on 18.02.2013. However, the Ld. CIT, DR vehemently contended that the AO has made addition of introduction of share capital in the assessee company based on statements recorded of entry providers against the assessee. Per contra, the Ld. AR pointed out that first of all, the AO did not himself record any statement of entry providers who gave statements against the assessee; secondly, no copies of purported statement of these entry operators were furnished to assessee; thirdly, statements made by these entry providers were general in nature and not specifically against the assessee; fourthly, no opportunity to rebut/crossexamination was given to assessee; fifthly, it has come to the assessee s knowledge that these so called entry providers have retracted the statement given to Investigation Wing which was the foundation on which the addition of share capital introduced into the assessee company was made. After hearing the rival submissions and carefully going through the records prod .....

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..... sion. The Ld. AR drew our attention to the fact that the full copies of the statements were never provided to the appellant nor any opportunity of cross-examination was given inspite of repeated requests. He also pointed out that the contents of the alleged statements, which formed the basis of the impugned addition, was neither disclosed to the assessee nor brought out in the assessment order. He drew our attention to the assessment order wherein the AO made observations in general terms that certain statements were recorded from various entry operators by the Investigation wing but neither the exact contents and the statements given accusing the appellant of availing accommodation entries were never disclosed to the assessee before passing the impugned order nor spelled out in the assessment order. In fact the Ld. AR pointed that even the AO himself never examined any of the alleged entry operators personally so as to bring on record the relevant information first hand which would have thrown light to the charge that the said persons had provided accommodation entries and thereby assessee s unaccounted income was introduced in the form of share application monies. The Ld. AR furt .....

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..... submissions and material available on record, we find merit in the Ld. AR s submission that before the AO made additions with reference to statements recorded from third parties not only the copy of the statement should have been provided to the assessee but also opportunity of cross examination should have been allowed. In the given facts of the case we however find that neither the AO himself examined these persons nor an opportunity to crossexamine any of these persons was given to the appellant, based on whose statements the addition was made. We therefore find merit in the Ld. AR s submissions that the additions were made without complying with principles of natural justice. In this regard the reliance placed by the Ld. AR on the decision of the Hon ble Supreme Court in the case of Kishinchand Chellaram vs. CIT, 125 ITR 713 (SC) is relevant. In this judgment the Hon ble Apex Court had held that the opportunity of cross-examination must be provided to the assessee. This proposition was reiterated by the Hon ble Supreme Court in the case of Andaman Timbers Ltd. Vs. Commissioner of Central Excise 62 Taxman 3 wherein it held as follows: 5. According to us, not allowing the Assesse .....

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..... cide the appeal on merits giving its reasons for accepting or rejecting the submissions. 7. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the show cause notice. 18. The Hon ble Jurisdictional High Court in the case of CIT Vs Eastern Commercial Enterprises (1994) 210 ITR 103 (Cal HC)held as follows:- As a matter of fact, the right to cross-examination a witness adverse to the assessee is an indispensable right and the opportunity of such cross-examination is one of the cornerstones of natural justice. 19. Applying the legal propositions laid down in above case laws, in order to ascertain as to whether there was any incriminating materials unearthed during the search qua the assessment year, we now deal with the additions/disallowances as made by the AO for AY 2008-09. We note that the AO made the addition invoking section 68 of the Act by summarizing the facts &observed as under: I) Names of the companies appearing m statements of the entry providers given .....

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..... had allegedly admitted that the assessee company had utilised accommodation entries through them. We however note that these statements recorded from third parties behind the back of assessee by themselves cannot be construed as incriminating material found in the course of search against the assessee. It was not the case of the Revenue that the persons whose statements were recorded were acting under the control and superintendence of the assessee and they were present in the premises at the time when the search proceedings were carried out against the assessee. The proceedings conducted by the Revenue authorities were independent and separate and were taken against these persons in their own right and in the statements certain averments were purportedly made. The oral averments so made could not by themselves be construed to be incriminating material found from the assessee in the search conducted against the assessee. It is for the person making the statement or the person using the statement for drawing inference against the assessee to prove the contents of the statement to be correct and truthfulness of the same, and not the other way round. The use of the statement recorded .....

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..... as is manifest from the order of the AO." Consequently, it was held that the AO was not justified in invoking Section 68 of the Act for the purposes of making additions on account of share capital. 3. As far as the above facts are concerned, there is nothing shown to the court to persuade and hold that the above factual determination is perverse. Consequently, after considering all the facts and circumstances of the case, the Court is of the opinion that no substantial question of law arises in the impugned order of the ITAT which requires examination. 4. The appeal is, accordingly, dismissed. 21. We may also gainfully refer to the following observations of the Hon ble Bombay High Court in the case in CIT Vs Reliance Industries Ltd (261 taxman 358) which are as follows: 2. Question Nos.1 and 2 are elements of the same issue and relate to the addition of ₹ 3.39 crores (rounded off) made by the Assessing Officer by disallowing expenditure of the said sum incurred by the respondent-assessee in form of payments to one Shri S.K. Gupta. The Assessing Officer on the basis of statement of said Shri Gupta recorded during search operations held that the said person had not rendere .....

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..... or was provided by the assessee company. No opportunity to cross-examine any of these entities was provided to the assessee. The bank statements based on which the cash trail was prepared were part of the disclosed documents/accounts and therefore cannot be held as incriminating material. Thus, we note that during the search and seizure operation conducted u/s. 132of the Act, no incriminating documents/papers in respect to additions made were seized or found. We therefore find merit in the Ld. AR s argument that the addition of ₹ 90,00,000/- [reduced to ₹ 70,00,000/- after verification] made u/s 68 in impugned order was without the aid of any incriminating material and therefore unsustainable in law. Consequently therefore the addition of the alleged commission paid amounting to ₹ 45,000/- is also held to be unsustainable. Accordingly both the additions are directed to be deleted. 23. The second material addition which is disputed in the appeals filed both by assessee and Revenue relates to disallowance of ₹ 21,81,06,060/- u/s 40(a)(ia) of the Act. At the onset it was brought to our attention that in the impugned order the Ld. CIT(A) did not adjudicate the s .....

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..... ns, we note that the issue involved stands in favour of the assessee in view of the factual findings given by the AO in his order u/s 251 of the Act. We also find merit in the primary contention of the assessee that such addition was legally untenable as the AO was unable to correlate the same with any incriminating document or evidence found in the course of search. We therefore hold that the impugned addition was both legally as well as factually unsustainable. 25. Now we proceed to adjudicate the cross appeals for AY 2009-10 being ITA (SS) Nos. 26/Kol/2016 & 38/Kol/2016.In Ground Nos. 2 to 8 of the appeal, the assessee has challenged the validity of the additions of ₹ 1,50,00,000/-& ₹ 75,000/- made by the AO by way of unexplained cash credit u/s 68 of the Act and alleged commission paid thereon, respectively. It is the appellant s contention that no incriminating document or evidence was unearthed in the course of search, which would justify the impugned additions and therefore urged that these additions be held legally unsustainable. The submissions both the parties were on identical lines as discussed in AY 2008-09 above. After considering the rival submiss .....

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..... r u/s 251 of the Act. We also find merit in the primary contention of the assessee that these additions were legally untenable as the AO was unable to correlate them with any incriminating document or evidence found in the course of search. For the reasons set out in the foregoing, Ground Nos. 9 to 12 of the assessee s appeal stands allowed and Ground Nos. 1 & 2 of the appeal of the Revenue stands dismissed. 27. Now we proceed to adjudicate the cross appeals for AY 2010-11 being ITA (SS) Nos. 27/Kol/2016&39/Kol/2016. In Ground Nos. 2 to 4 of the assessee s appeal and Ground No. 2 of the Revenue s appeal; the issues involved relates to (a) disallowance of ₹ 90,018/- u/s 40(a)(ia) and (b) addition of ₹ 43,12,00,000/- on account of evasion of railway freight. At the onset it was brought to our attention that in the impugned order the Ld. CIT(A) did not adjudicate the said issues at his end but restored these issues back to the AO for verification and passing the order afresh. At the time of hearing of the appeal, the Ld. AR brought to our attention that in the order passed u/s 251 the AO being satisfied with the assessee s explanation, himself refrained from retain .....

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..... sed u/s 251 the AO being satisfied with the assessee s explanation, himself refrained from retaining those additions in the total income assessed in the order passed u/s 251 of the Act. Besides the Ld. AR also submitted that no incriminating document or evidence was found in the course of search on 18.02.2013 to justify these additions. The Ld. CIT, DR could not controvert these factual aspects of the matter. After considering the rival submissions, we note that the issues involved stands decided in favour of the assessee in view of the factual findings given by the AO in his order u/s 251 of the Act. We also find merit in the primary contention of the assessee that these additions were legally untenable as the AO was unable to correlate them with any incriminating document or evidence found in the course of search. For the reasons set out in the foregoing, Ground Nos. 2 to 4 of the assessee s appeal stands allowed and Ground No. 2 of the appeal of the Revenue stands dismissed. 30. Ground No. 1 of the Revenue s appeal is against the relief allowed by the Ld. CIT(A) in deleting the disallowance of loss of ₹ 1,75,000/- on sale of fixed assets. We note from the impugned order of .....

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..... premium. According to AO the entire transaction lacked commercial substance and therefore he concluded that the amount received by the appellant from M/s. Mundat Securities & Services Pvt. Ltd was assessable as income u/s 68 of the Act. Aggrieved by the order of the AO, the appeal was filed before the Ld. CIT(A) who confirmed the addition. Being aggrieved by the Ld. CIT(A) s order, the assessee is now in appeal before us. 32. At the time of hearing of the appeal the Ld. AR in the first instance brought to our attention that the share applicant, M/s. Mundat Securities & Services Pvt. Ltd was one of the group company and it belonged to the promoter group. In the paper book he filed copies of the assessment orders dated 31.03.2015 passed u/s 153C/143(3) for the AYs 2007-08 to 2013-14. With reference to these orders, he pointed out that the assessment records of M/s. Mundat Securities & Services Pvt. Ltd were centralized to the charge of ACIT, CC-2(2), Kolkata as a consequence of the search conducted in the case of Rashmi Group . In other words, the AO of the appellant as well the share applicant was one and the same and in both the cases the assessment orders were framed o .....

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..... up against the share applicant on the ground that some incriminating material or books of accounts or documents belonging to the said company were found in the course of search conducted against Rashmi Group to which the appellant as well as the share applicant belonged. On these facts therefore we find merit in the Ld. AR s primary submissions the share applicant belonged to Rashmi Group which was the promoter of the appellant. We also note that the share applicant, M/s. Mundat Securities & Services Pvt. Ltd was subjected to assessment proceedings u/s 153C for AYs 2007-08 to 2013-14 and the orders were passed for these years u/s 153C/143(3) on 31.03.2015 being the same date on which the same AO who passed the impugned assessment order. We therefore find that both in the case of the appellant company as well as M/s. Mundat Securities & Services Pvt. Ltd the assessment orders for AY 2007-08 to 2013-14 were simultaneously passed after conducting thorough enquiries and investigation. Neither the AO nor the Ld. DR could dispute the fact that the investment made in the equity of appellant was duly disclosed in the books of the share applicant. We also note that in the same accou .....

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..... ial treatment. For the reasons discussed in detail in the foregoing therefore we also do not find any merit in the Ld. DR s pleading to the effect that the matter needs to be restored to the file of the AO for decision afresh. This is particularly in view of the fact that in the orders u/s 153C/143(3), the AO of M/s. Mundat Securities & Services Pvt. Ltd had accepted the genuineness of the transaction and therefore it was not open for the same AO to question the genuineness of the receipt of monies in the hands of the appellant. We therefore direct the AO to delete the addition of ₹ 64,45,11,500/-. Ground Nos. 1 to 7 are therefore allowed. 34. Ground No. 8 is against the addition of ₹ 32,22,558/- made on account of alleged commission paid for obtaining accommodation entries in the form of share capital. In view of our finding with regard to Ground Nos. 1 to 7 above, the impugned addition of ₹ 32,22,558/- has no legs to stand on and is accordingly deleted. This ground stands allowed. 35. Ground No. 9 of assessee s appeal and Ground No. 2 of Revenue s appeal are against the addition of ₹ 74,98,000/- on account of evasion of railway freight. At the onset it .....

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..... transactions. In the impugned order the AO noted that the share application monies to the extent of ₹ 126,99,85,000/- was received from eight entities and this was found to be genuine. It is only in respect of the sum of ₹ 35,85,00,000/- received from M/s. Pragya Tie-Up Pvt. Ltd Ltd that the AO disbelieved the genuineness of the transaction on the premise that the said company existed only on paper. The AO thereafter proceeded to examine the source of the monies received from M/s. Pragya Tie-Up Pvt. Ltd and after discussing the sources of sources the AO came to conclusion that he was able to identify the cash deposits to the extent of ₹ 35,85,00,000/-. These facts in AO s opinion established his conclusion that the appellant was unable to explain the genuineness of the transaction. According to AO the entire transaction lacked commercial substance and therefore he concluded that the amount received by the appellant from M/s. Pragya Tie-Up Pvt. Ltd was assessable as income u/s 68 of the Act. Aggrieved by the order of the AO, the appeal was filed before the Ld. CIT(A).Before the Ld. CIT(A) the appellant brought to his notice that in the income-tax assessment of M/s .....

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..... ntive basis. The said assessment order supported the Ld. AR s contention that the identity of the share applicant had been accepted by the Department and therefore regular assessment was completed u/s 143(3) of the Act. We also find merit in the Ld. CIT(A) s finding that if the addition has been made in the hands of the share applicant company then no addition is warranted in the hands of the investee company because any such addition would result in double taxation of the same sum which is not permitted in law. We therefore, in the facts and circumstances do not find any infirmity in the directions as such given by the Ld. CIT(A). However, since the Ld. CIT(A) does not enjoy the power to set aside the issue to AO to re-examine, and we have the power to do so, we modify the Ld. CIT(A) s order and hold that the directions contained in the Ld. CIT(A) s order be regarded as integral part of the order passed by this Tribunal and the AO is directed to re-frame the assessment on this issue keeping in view the directions contained in Para 4 at page 40,41 and 42 of the order of the Ld. CIT(A). Before doing so, the AO shall give sufficient opportunity of being heard to the assessee. Ground .....

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