2018 (8) TMI 1796 - AT - Income Tax

Tribunal remands tax assessment due to lack of verification by AO, stresses importance of thorough investigations

The Tribunal allowed the appeal for statistical purposes as the AO failed to conduct independent verifications as directed by the Commissioner, leading to ... Jurisdiction u/s 263 - Addition u/s 68 towards share capital - HELD THAT:- In dispute that the entire transactions of share capital and share premium was the subject matter of verification in the re-assessment proceedings by the AO, wherein the shareholders had duly responded to notice u/s 133(6) of the Act by confirming the fact of making investments in the assessee company. The shareholders had also duly furnished their income tax assessment particulars. CIT u/s 263 AO was mandated to make direct verifications about the genuineness of the transactions and creditworthiness of the shareholders by making necessary specific enquiries as listed out in the revision order u/s 263 - CIT had specifically directed the AO to make enquiries directly from the shareholders and not through the assessee. Non-appearance of the assessee before the ld AO and non-production of the shareholders of the assessee company before the AO, intentionally or unintentionally does not make any relevance here. CIT had directed the AO to investigate into multiple layers of the investment in shares made by respective shareholders and identify the ultimate person holding controlling interest including the change in shareholding, directorship etc and then take the entire matter to its logical conclusion to bring out the facts on record. From the perusal of the assessment order, we find that this has not been done by the ld AO. Remand the matter back to the file of the AO for de novo assessment and to decide the matter as mandated by the CIT in section 263 order, after giving sufficient opportunity of being heard to the assessee. Accordingly, the Grounds raised by the assessee are allowed for statistical purposes. Issues Involved:- Justification of upholding addition made under section 68 of the Income Tax Act towards share capital.Analysis:1. The appeal was against the order passed by the Commissioner of Income Tax (Appeals) regarding the addition made under section 68 of the Income Tax Act towards share capital. The primary issue was whether the Commissioner was justified in upholding the addition of Rs. 10,31,00,000 towards share capital.2. The case involved an investment company where the assessment for the year 2008-09 was framed under sections 143(3)/147 of the Act. The Commissioner initiated revision proceedings under section 263 due to inadequate verification of share capital and share premium. The Assessing Officer observed non-cooperation from the assessee in verifying the genuineness of share capital investments, leading to the addition of Rs. 10,31,00,000 to the total income.3. During the proceedings, the assessee claimed that shareholders had responded to notices directly to the Assessing Officer, proving the identity of shareholders. However, the Commissioner's order directed independent inquiries by the AO, not through the assessee. The AO's non-cooperation conclusion led to the addition. The Commissioner found the AO's assessment erroneous and directed a fresh assessment considering the source of share capital and premium.4. The Tribunal noted that the AO did not conduct independent verifications as directed by the Commissioner. The shareholders had responded during the original assessment, confirming investments. The Tribunal emphasized the need for direct verification by the AO and faulted the AO for not conducting a thorough investigation. Citing a similar case, the Tribunal remanded the matter back to the AO for a de novo assessment.5. Relying on a decision by the Delhi High Court, the Tribunal emphasized the importance of proper inquiry to establish creditworthiness and genuineness of transactions. Consequently, the Tribunal remanded the case to the AO for a fresh assessment, ensuring a fair opportunity for the assessee to be heard.6. The Tribunal allowed the appeal for statistical purposes as the fifth ground was general in nature, not requiring specific adjudication. Ultimately, the appeal of the assessee was allowed for statistical purposes.7. The judgment was pronounced on 3rd August 2018, emphasizing the need for a thorough investigation into share capital transactions and the importance of conducting independent verifications to establish the genuineness of investments.