2021 (12) TMI 310 - AT - Income Tax

Tribunal grants relief to assessee, rules against improper addition, violation of natural justice.

The Tribunal ruled in favor of the assessee on various grounds, including the invalidity of reassessment proceedings, improper addition under Section 68, ... Reopening of assessment u/s 147 - Validity of reasons to believe - addition u/s 68 of the Act on account of share capital and share application money received by the assessee - as on the basis of a search operation conducted u/s 132 of the Act on 9th October, 2014 in the Kuber group of cases and on the basis of the statement recorded of Shri Mul Chand Malu and on the basis of post search enquiries, reopened the assessment after recording reasons - HELD THAT:- We find, in the instant case the information on the basis of which reasons were conceived was not gathered in search or post search enquiries. Further, the observation of the AO that M/s Binapani Merchandise Pvt. Ltd. is a Jamakharchi company is contrary to report of the commission. This company comes under the category of those companies whose address is not traceable. We further find, Shri Vikas Aggarwal, in his answer to questions No.7 to 12 has not named any of the companies who deposited the money is appearing. Further, in none of the statements recorded by the Investigation Wing of Kolkata, the name of any company who deposited money with the assessee company is appearing. We find, although the assessee has specifically asked for cross-examination of the persons whose statements were relied on by the AO, however, the same was not provided. So far as the name of Mr. Devesh Upadhya is concerned, we find the AO has stated that in the commission report received from Kolkata office, statement of Vikas Agrawala, Devesh Upadhya and Praveen Kumar are mentioned. However, in none of these statements of entry operators, the name of the assessee is mentioned. Further, opportunity to cross examine has not been provided. A perusal of the chronology of date chart shows that the statements of all these persons were recorded prior to the date of search in the Kuber group of cases i.e., on 09.10.2014. Since the assessee in the instant case also belongs to the Kuber Group of companies and the facts are identical, therefore, respectfully following the decision of the Tribunal in the case of Kuber Khanpan Udyog (P) Ltd. (supra), [2021 (3) TMI 1159 - ITAT DELHI] we hold that the addition made by the AO and sustained by the CIT(A) cannot be upheld. We, therefore, set aside the order of the ld.CIT(A) and direct the AO to delete the addition - Decided in favour of assessee. Issues Involved:1. Validity of reassessment proceedings under Section 147/148 of the Income Tax Act.2. Addition of Rs. 1,90,00,000 under Section 68 of the Income Tax Act on account of share capital/share premium.3. Violation of principles of natural justice due to non-provision of cross-examination of witnesses.4. Mechanical approval by the CIT for reassessment.5. Non-compliance with the four-week waiting period after disposing of objections before passing the final assessment order.Detailed Analysis:1. Validity of Reassessment Proceedings under Section 147/148:The assessee challenged the reassessment proceedings initiated by the AO, arguing that the reasons recorded for reopening were based on incorrect facts and stale information. The AO's reasons for reopening were derived from statements recorded during previous enquiries and not from the search or post-search enquiries related to the Kuber Group. The Tribunal found merit in the assessee's argument, noting that the information used by the AO was not gathered during the search or post-search investigations. The Tribunal observed that the AO's claim that M/s Binapani Merchandise Pvt. Ltd. was a 'jamakharchi' company was contrary to the report of the commission, which categorized it as a company with an untraceable address. Additionally, the statements of Mr. Vikas Aggarwal and Mr. Devesh Upadhyaya did not mention the assessee company. Therefore, the Tribunal held that the reopening of the assessment was not in accordance with the law.2. Addition under Section 68 on Account of Share Capital/Share Premium:The AO made an addition of Rs. 1,90,00,000 under Section 68, citing that the assessee failed to prove the identity, creditworthiness, and genuineness of the transactions. The assessee had provided various documents, including share application forms, confirmations, bank statements, and ITR acknowledgements, but failed to produce the directors of the investor companies. The Tribunal found that the AO's reliance on third-party statements without providing cross-examination opportunities to the assessee was unjustified. The Tribunal noted that the AO did not conduct independent enquiries and solely relied on the statements from the investigation wing. Consequently, the Tribunal directed the AO to delete the addition made under Section 68.3. Violation of Principles of Natural Justice:The assessee argued that the AO violated the principles of natural justice by not providing an opportunity to cross-examine the witnesses whose statements were relied upon. The Tribunal agreed with the assessee, noting that the AO did not allow cross-examination despite specific requests. The Tribunal emphasized that third-party statements cannot be relied upon without granting cross-examination, especially when such statements are the sole basis for the addition.4. Mechanical Approval by the CIT:The assessee contended that the CIT granted approval for reassessment in a mechanical manner without proper application of mind. The Tribunal found that the date of reasons recorded, the date of sanction, and the date of issuance of notice, coupled with factual inaccuracies, indicated that the approval was indeed mechanical. The Tribunal cited various judicial precedents to support its conclusion that mechanical approval invalidates the reassessment proceedings.5. Non-compliance with the Four-Week Waiting Period:The assessee argued that the AO did not wait for the mandatory four-week period after disposing of objections before passing the final assessment order. The Tribunal noted that the AO passed the final order within four weeks of disposing of the objections, which was another ground for annulling the assessment. The Tribunal referred to judicial decisions that held reassessment proceedings invalid if the AO did not comply with the four-week waiting period.Conclusion:The Tribunal found in favor of the assessee on multiple grounds, including the invalidity of the reassessment proceedings, improper addition under Section 68, violation of natural justice, mechanical approval by the CIT, and non-compliance with the four-week waiting period. Consequently, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition, thereby allowing the appeal filed by the assessee.