2018 (3) TMI 45 - AT - Income Tax

ITAT remits case to AO for fresh inquiry, directs further investigation into companies controlled by Shri Praveen Kumar Jain.

The Income Tax Appellate Tribunal (ITAT) remitted the case back to the Assessing Officer (AO) for fresh consideration. The AO was directed to conduct ... Unexplained cash credit u/s 68 - share application money - shell companies - non adherence to necessary enquiry - Held that:- The facts and circumstances of the case clearly mandated that where the learned CIT-A was not satisfied with the enquiry made by the assessing officer, he should have himself made the necessary enquiry. It is settled law that powers of learned CIT-A are coterminous with that of the assessing officer. Furthermore honourable apex court has held in the case of Kapoorchand Shrimal [1981 (8) TMI 2 - SUPREME Court] that it is the duty of the appellate authority to correct the errors in the order's of the authorities below. The issue in this case needs to be remitted to the file of the assessing officer. Assessing officer is directed to make further enquiries by issuing necessary summons to the shell companies operated by Shri Praveen Kumar Jain who are said to have contributed share application money in assessee company. This is necessary in view of the background finding of revenue that the share applicant’s companies are bogus companies. Furthermore, thousands of such companies have been struck from the register of companies. The assessing officer should also make reference to the action taken by the Finance Ministry in this regard, as to whether names of these companies appear in the list of such struck off companies. The issue stands remitted to the file of the assessing officer. - Decided in favour of revenue for statistical purposes. Issues Involved:1. Deletion of addition of Rs. 70,00,000/- on account of unexplained cash credit under Section 68 of the Income Tax Act.2. Verification of the genuineness of share application money received from certain companies controlled by Shri Praveen Kumar Jain.3. Whether the Commissioner of Income Tax (Appeals) properly evaluated the evidence and conducted necessary inquiries.Issue-wise Detailed Analysis:1. Deletion of Addition of Rs. 70,00,000/- on Account of Unexplained Cash Credit under Section 68:The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which deleted the addition of Rs. 70,00,000/- made by the Assessing Officer (AO) as unexplained cash credit under Section 68. The AO had noted that the companies from which the assessee received share application money were controlled by Shri Praveen Kumar Jain, who admitted that these companies were engaged in providing accommodation entries. The AO assessed the share application money as unexplained cash credit based on this information.2. Verification of the Genuineness of Share Application Money Received from Certain Companies Controlled by Shri Praveen Kumar Jain:During the assessment proceedings, the AO noted that the assessee received share application money from companies controlled by Shri Praveen Kumar Jain, who admitted during a search and seizure action that these companies were engaged in providing accommodation entries. The AO issued notices under Section 133(6) to verify the genuineness of the transactions. The companies responded affirming their investment in the assessee's company. Despite this, the AO considered the share application money as unexplained cash credit, citing the statements of Shri Praveen Kumar Jain and the nature of the companies involved.3. Evaluation by the Commissioner of Income Tax (Appeals) and Conduct of Necessary Inquiries:The CIT(A) found that the assessee had submitted all necessary details, including names, addresses, PANs, and bank statements of the share applicants. The CIT(A) concluded that the identity, creditworthiness, and genuineness of the share applicants were proved. The CIT(A) criticized the AO for not conducting further inquiries or specifying what additional material was required. The CIT(A) relied on various judicial precedents to support the deletion of the addition.However, the ITAT noted that the CIT(A) erred in ignoring the background of the case, where it was found that the assessee received accommodation entries from bogus companies controlled by Shri Praveen Kumar Jain. The ITAT emphasized that the CIT(A) should have conducted further inquiries if not satisfied with the AO's investigation. The ITAT cited several judicial precedents, including the Hon'ble Supreme Court's decisions, to support the need for considering the surrounding circumstances and the theory of preponderance of probability.Conclusion:The ITAT remitted the issue back to the AO for fresh consideration, directing the AO to make further inquiries by issuing necessary summons to the companies operated by Shri Praveen Kumar Jain. The AO was also instructed to refer to the action taken by the Finance Ministry regarding the striking off of such companies. The appeal filed by the Revenue was allowed for statistical purposes, and the AO was directed to give the assessee adequate opportunity of being heard.