2010 (2) TMI 1237 - AT - Income Tax

Tribunal remits matter for fresh examination under IT Act, upholds validity of notice.

ITO, Ward-18 (4) New Delhi Versus M/s Zars Trading Private Limited and vice-versa

ITO, Ward-18 (4) New Delhi Versus M/s Zars Trading Private Limited and vice-versa - TMI Issues Involved:1. Deletion of addition of Rs. 16,00,000/- under section 68 of the IT Act.2. Validity of notice issued under section 148 of the IT Act.Issue-wise Detailed Analysis:1. Deletion of Addition of Rs. 16,00,000/- under Section 68 of the IT Act:The assessee filed its return of income declaring an income of Rs. 3010/-. The Assessing Officer (AO) received information that the assessee had taken accommodation entries amounting to Rs. 16 lacs from four specified companies. The AO observed that the bank accounts of these companies showed frequent deposits and withdrawals, indicating that they were used for routing accommodation entries. The AO asked the assessee to produce the directors of these companies, but they did not attend. The assessee submitted affidavits from the directors and argued that the AO could use his powers under section 131 to summon them. The AO added Rs. 16 lacs to the assessee's income under section 68, as the assessee failed to prove the identity, genuineness, and creditworthiness of the creditors.The CIT(A) deleted the addition, noting that the share application money was received by account payee cheques and the companies were registered under the Companies Act. The CIT(A) relied on the jurisdictional High Court's decision in the case of Divine Leasing Ltd., which held that when the identity of the person is established and the amount is received by cheque, no addition should be made.On appeal, the Tribunal found that the assessee had only submitted affidavits from the directors and had not provided documents such as ROC registration certificates, PAN details, income tax returns, or balance sheets of the companies. The Tribunal noted that the CIT(A) had incorrectly inferred that the identity of the companies was established. The Tribunal also observed that the share premium of Rs. 90/- for shares of Rs. 10/- each was not justified. Citing the Apex Court's decisions in Kapurchand Shrimal and Durga Prasad More, the Tribunal remitted the matter to the AO for fresh examination.2. Validity of Notice Issued Under Section 148 of the IT Act:The assessee argued that the notice under section 148 was illegal and void ab initio, as there was no 'reason to believe' that income had escaped assessment. The assessee contended that the reasons recorded did not contain the basic jurisdictional element and that the AO had acted on the direction of the Investigation Wing without forming his own belief.The CIT(A) held that the AO had reasons to believe that income had escaped assessment based on the information from the Investigation Wing, which indicated that the assessee was a beneficiary of accommodation entries. The CIT(A) noted that the AO had information that the assessee had credited Rs. 16 lacs in its books as share application money, and the entry providers had admitted to being entry operators.The Tribunal upheld the CIT(A)'s order, noting that the return was processed under section 143(1) and there was no question of forming an opinion. The Tribunal referred to the Apex Court's decision in Rajesh Jhaveri, which held that intimation under section 143(1)(a) cannot be treated as an order of reassessment. The Tribunal also cited the Apex Court's decision in Raymond Woolen Mills, which held that there should be prima facie material for reopening, and the sufficiency or correctness of the material need not be established at the time of recording reasons. The Tribunal dismissed the assessee's cross objection, holding the reopening as valid.Conclusion:The appeal filed by the revenue was allowed for statistical purposes, and the cross objection filed by the assessee was dismissed. The matter regarding the addition of Rs. 16 lacs was remitted to the AO for fresh examination, and the reopening of the assessment was upheld as valid.