Tribunal sets aside CIT(A) decision on section 68 addition, rules against commission, deems purchase not bogus.

The Tribunal partly allowed the appeal, setting aside the CIT(A)'s decision on the addition under section 68 of the Act. The Tribunal directed the deletion of the addition and disallowed commission, holding that the provisions of section 68 could not be applied to the realization of the investments. The Tribunal found that if the sale of shares was considered bogus, then the purchase would also be deemed bogus, but since no action was taken in the prior year regarding the purchase, the entire amount could not be added under section 68.

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Issues:
Validity of reassessment proceedings u/s. 148 of the Act and addition u/s. 68 of the Act on merit.

Analysis:

1. Reassessment Proceedings Validity:
The AO reopened the assessment based on information regarding accommodation entry received during a search action. The assessee objected to the reopening, but the objections were rejected. The CIT(A) upheld the validity of the reassessment proceedings. The Tribunal found that the AO had valid reasons for reopening and followed due process, including providing reasons to the assessee. The Tribunal upheld the CIT(A)'s decision on the validity of the reassessment proceedings.

2. Addition u/s. 68 of the Act:
The AO added the sale proceeds of shares to the assessee's income under section 68 of the Act, as the parties involved did not respond to notices. The assessee contended that the shares were sold for a genuine consideration, supported by evidence. The Tribunal noted that the shares were purchased in a prior year and sold during the assessment year, with the sale proceeds received by cheque. Therefore, the provisions of section 68 could not be applied to the realization of these investments. The Tribunal held that if the sale of shares was deemed bogus, then the purchase would also be considered bogus. As no action was taken in the prior year regarding the purchase, the entire amount could not be added under section 68. The Tribunal directed the AO to delete the addition and also deleted the disallowed commission. The grounds challenging the addition on merit were allowed.

In conclusion, the Tribunal partly allowed the appeal filed by the assessee, setting aside the CIT(A)'s decision on the addition u/s. 68 of the Act and directing the deletion of the addition and disallowed commission. The decision was pronounced on 07.07.2021.

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