2018 (4) TMI 1792 - AT - Income Tax

Tribunal quashes AO's order for lack of specifics, deletes added income under section 68, and disallowed lump sum expenses.

M/s Shivalik Kinema Pvt. Ltd. Versus DCIT, Circle-04 Jaipur

M/s Shivalik Kinema Pvt. Ltd. Versus DCIT, Circle-04 Jaipur - TMI Issues Involved:1. Validity of the order passed by the AO under section 147 of the I.T. Act, 1961.2. Addition of Rs. 30 lakhs under section 68 by treating the share capital money received from certain parties as unexplained.3. Lump sum disallowance of Rs. 31,171, being 25% of various expenses of Rs. 1,24,682.Issue-wise Detailed Analysis:1. Validity of the Order Passed by the AO under Section 147 of the I.T. Act, 1961:The assessee challenged the validity of the order passed by the AO under section 147, arguing that the primary condition for initiating action under section 147 is that the AO must have reason to believe that any income chargeable to tax has escaped assessment. The reasons recorded by the AO were claimed to be vague and not specific, as they were based solely on information received from the Investigation Wing, Delhi, without independent application of mind. The AO’s reasons did not mention the names, addresses, or quantum of the alleged accommodation entries. The assessee cited various judicial precedents, including the Hon’ble Bombay High Court's decision in Hindustan Lever Ltd. v. R.B. Wadkar, which emphasized that reasons recorded by the AO must be clear, unambiguous, and self-explanatory, and cannot be supplemented by affidavits or oral submissions.The Tribunal found that the reasons recorded by the AO were indeed vague and lacked specifics such as the nature, quantum, and entities involved in the alleged accommodation entries. The Tribunal also noted that the information received from the Investigation Wing was not supplied to the assessee along with the reasons recorded. Consequently, the Tribunal held that the reopening of the assessment was not justified and quashed the order passed by the AO under section 147.2. Addition of Rs. 30 Lakhs under Section 68:On the merits, the assessee received share capital/share application money of Rs. 30 lakhs from three parties. The AO, based on information from the Investigation Wing, concluded that the assessee was a beneficiary of accommodation entries provided by the S.K. Jain group. The AO issued letters under section 133(6) to these parties, but no information was received. The AO also required the assessee to produce certain individuals, which the assessee failed to do. Consequently, the AO made an addition of Rs. 30 lakhs under section 68.The Tribunal noted that the assessee had provided various documents to establish the identity, genuineness, and creditworthiness of the entities from which the share capital was received. These included share application forms, confirmations, bank statements, balance sheets, and ROC returns. The Tribunal also observed that the AO did not provide the assessee with the opportunity to cross-examine the individuals whose statements were relied upon, nor did the AO confront the assessee with the specific information and documents available with the department. Citing judicial precedents, the Tribunal held that the addition under section 68 was not justified and deleted the addition.3. Lump Sum Disallowance of Rs. 31,171:The assessee challenged the sustenance of disallowance of Rs. 31,171 in respect of various expenses claimed. The AO had made a lump sum disallowance of 50% of these expenses, which the CIT(A) restricted to 25%. The assessee argued that the lower authorities did not point out any specific instances of expenses that were not properly vouched or were not genuine and that these were regular business expenditures required to be incurred even if no business was carried out during the year.The Tribunal found that the disallowance was made on an ad hoc basis without any specific finding that the expenses were bogus or not incurred for business purposes. The Tribunal held that ad hoc disallowance of expenses is not permissible in law and deleted the disallowance.Conclusion:The Tribunal allowed the appeal filed by the assessee, quashing the order passed by the AO under section 147, deleting the addition of Rs. 30 lakhs under section 68, and deleting the lump sum disallowance of Rs. 31,171 in respect of various expenses.