2021 (7) TMI 506 - AT - Income Tax

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 ... Validity of reassessment proceedings - Addition u/s 68 - HELD THAT:- CIT(A) after detailed discussions, dismissed each of the aspect raised by the assessee challenging the validity of the reassessment proceedings. In absence of any contrary material brought to our notice, the reassessment proceedings initiated by the AO and confirmed by the CIT(A) is upheld. Addition u/s 68 - As assessee, during the year, has sold the investment and has received the amount by cheque and, therefore, provisions of section 68 cannot be applied to realization of investment which was duly reflected in the balance sheet of the assessee company in the preceding assessment year. In my opinion, if the sale of share is bogus, then the purchase of the same shares is also bogus. If the case of the Revenue is that assessee's own money has come back to the assessee in shape of accommodation entry, then, the money of the assessee had gone in the preceding year in shape of purchase of the shares which were sold during the year. No action appears to have been taken in the preceding assessment year treating the purchase of the shares as bogus. Once such bogus purchase is sold then the entire amount, cannot be added u/s. 68 - set aside the order of the CIT(A) on this issue and direct the AO to delete the addition - Decided in favour of assessee. 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.