2023 (6) TMI 1112 - AT - Income Tax

Tribunal sets aside CIT(A) decision, orders fresh assessment by Assessing Officer. Emphasizes compliance and fair hearing.

The Tribunal allowed the appeal, setting aside the CIT(A) decision and ordering a fresh assessment by the Assessing Officer. The Tribunal emphasized the ... Addition u/s 68 - unexplained cash credit - as per DR investor company had source of investment from sale of its investment in various private limited companies and it is not proved on the file that the above source was from sale of shares of genuine companies, thus source of the source was not verified - HELD THAT:- AO has categorically mentioned in the assessment order that notices u/s 143(2) and 142(1) were issued and duly served upon the assessee, but there was no compliance. AO has also mentioned that the assessee was required to furnish the various details as noted above but there was no mention in the assessment order that such details were ever filed by the assessee before the Assessing Officer. Though as pointed out by the ld. counsel, some details might have been filed by the assessee before the Assessing Officer but as noted by the AO, all the requisite details as called for by the AO have not been filed. Notice issued u/s 131 along with questionnaire have not been complied with. Even, there is no discussion in the impugned order of the CIT(A) regarding the aforesaid points raised by the assessee. There was no submission of the assessee before any of the lower authorities that the subscribing company was a group company of the assessee. Though, it has been contended before us that the source of the investor company was from sale proceeds of shares, however, no such details have been filed before any of the lower authorities. The case was selected for scrutiny of large share premium and the assessee has not justified about the same by way of either submission or furnishing requisite details. In our view, the entire issue is required to be examined afresh at the end of the AO - We, accordingly, set aside the impugned order of the CIT(A) and restore the issue to the file of the Assessing Officer for de novo assessment. Appeal of the assessee is treated as allowed for statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether share capital and share premium aggregating Rs.1,65,00,000/- can be treated as unexplained cash credit under section 68 of the Income Tax Act where the assessee failed to satisfactorily establish identity, genuineness and creditworthiness of the share subscriber and did not comply fully with notices and summons issued under sections 142(1), 143(2) and 131. 2. Whether an ex parte best judgment assessment under section 144 is sustainable where the Assessing Officer records non-compliance with enquiries and proceeds to add amounts under section 68 without discussing any specific documentary evidence furnished by the assessee. 3. Whether the Commissioner of Income Tax (Appeals) was justified in confirming the addition under section 68 without addressing the assessee's specific contentions (including group relationship of subscriber, source of funds and other explanations) and without a fresh examination of the matter. 4. Whether the matter requires remand for de novo enquiry and assessment (including giving adequate opportunity to the assessee) where the record does not demonstrate full compliance or considered evaluation of alleged submissions and documents. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of addition under section 68 where identity, genuineness and creditworthiness are not established Legal framework: Section 68 treats unexplained cash credits as income where identity, genuineness and creditworthiness of a creditor are not satisfactorily proved. The assessing authority may call for documents and examine source and manner of funds; non-establishment permits addition on preponderance of probabilities. Precedent treatment: The Assessing Officer applied judicial decisions (not exhaustively discussed in the impugned order) to treat the receipt as unexplained. The CIT(A) also relied upon various case laws to uphold the addition. The Tribunal did not adopt or overrule any particular precedent but evaluated sufficiency of inquiry and material on record. Interpretation and reasoning: The Tribunal examined the assessment record and found that while the AO recorded issuance of notices and summoned information, there is no clear contemporaneous record showing that all requisite details called for were filed and examined. The AO noted lack of compliance in the assessment order and proceeded to make a best judgment addition under section 144, holding that identity/creditworthiness/genuineness were not proved. The assessee's contentions before the Tribunal included that there was a single subscriber, that the subscriber was a group company, that the subscriber's funds derived from sale proceeds, and other indicia of genuineness; however, those points were not demonstrated on the assessment file nor were specific source documents found discussed in the orders below. Ratio vs. Obiter: Ratio - where an assessee does not prove identity, genuineness and creditworthiness of the share applicant to the satisfaction of the assessing authority and does not comply with statutory enquiries, an addition under section 68 can be made on preponderance of probabilities. Obiter - ancillary observations about characteristics of shell companies quoted by lower authorities (from an external Tribunal decision) were used for analysis but not adopted as decisive law by the Tribunal. Conclusion: The Tribunal did not uphold or strike down the substantive legal principle behind section 68; rather it concluded that the factual matrix on file requires fresh enquiry because the necessary documents and considered evaluation on the record are absent. Accordingly, the substantive question of whether the receipts are unexplained remains open for de novo determination by the Assessing Officer after full opportunity to the assessee. Issue 2 - Sustainability of ex parte/best judgment assessment under section 144 where enquiries remained partly unanswered Legal framework: Section 144 permits best judgment assessment where an assessee fails to comply with statutory notices or to produce material; nevertheless a best judgment order must be based on material on record and the assessing officer must record reasons and consider available documents. Precedent treatment: The AO recorded non-compliance with notices and proceeded under section 144. The CIT(A) confirmed the AO's addition without documenting consideration of any specific documents purportedly filed by the assessee. The Tribunal scrutinised these procedural aspects rather than overrule the principle permitting best judgment assessment. Interpretation and reasoning: The Tribunal noted internal inconsistency in the assessment order (a paragraph stating 'from the details filed' yet an overall finding of non-compliance and no discussion of the documents claimed to have been filed). The Tribunal emphasised that where some material may have been filed, the AO and CIT(A) must specifically consider and record findings on such material before making a best judgment addition. Failure to do so makes the impugned orders unsuitable for being sustained without further enquiry. Ratio vs. Obiter: Ratio - best judgment assessment under section 144 must rest upon a considered evaluation of available material and clear recording of non-compliance; absent that, the assessment is vitiated and requires re-examination. Obiter - observations concerning the extent or value of specific documents asserted by the assessee before the Tribunal were treated as factual contentions requiring proof. Conclusion: The ex parte/best judgment assessment could not be sustained on the existing record; the Tribunal directed de novo consideration by the Assessing Officer with opportunity to the assessee to place on record and have examined the claimed documents and explanations. Issue 3 - Whether the appellate authority erred in confirming the addition without addressing specific submissions Legal framework: An appellate authority is required to examine the facts and submissions made before the assessing officer and to render a speaking order addressing relevant contentions. Precedent treatment: The CIT(A) relied on case law to affirm the AO's view but did not discuss or record findings on several specific contentions later raised before the Tribunal (group company relationship, source-of-funds particulars, appearance of director to AO but non-examination, etc.). Interpretation and reasoning: The Tribunal observed that the CIT(A)'s order lacks discussion on crucial factual points that the assessee alleged were on file or were submitted (for example, claimed group relationship and claimed source by sale proceeds). The appellate order therefore did not demonstrate that the CIT(A) engaged in a fresh or full evaluation; in those circumstances the Tribunal found it appropriate to remit the matter for fresh adjudication rather than simply reverse or confirm. Ratio vs. Obiter: Ratio - an appellate order upholding additions must address the assessee's specific factual explanations if those explanations are placed on record; failure to do so warrants remand for fresh consideration. Obiter - suggestions about how the AO should evaluate particular documentary proofs were instructional rather than binding. Conclusion: The CIT(A)'s confirmation of the addition is set aside because the appellate order does not show adequate consideration of the asserted explanations and materials; the issue is remitted for de novo assessment. Issue 4 - Need for remand and direction for de novo assessment with opportunity to assessee Legal framework: Where material facts are not adequately examined or where procedural non-compliance with recording reasons occurs, higher authorities may remand for fresh enquiry and give directions to the assessing authority to afford opportunity and pass a speaking order. Precedent treatment: The Tribunal, after reviewing the record and the pleadings before it, invoked this remedial power to secure a fresh, reasoned decision at the fact-finding stage. Interpretation and reasoning: The Tribunal found lacunae: (a) inconsistent recital about filings, (b) absence of discussion on claimed submissions and documents, (c) non-recording of examination despite summons, and (d) reliance on shell-company characteristics without fully dealing with the assessee's counter-assertions. In these circumstances the proper course is to remit to the Assessing Officer for de novo adjudication, ensuring the assessee is given adequate opportunity to produce and explain documentary evidence and for the AO to pass a speaking order addressing identity, genuineness and creditworthiness under section 68 (and any reliance on proviso or other statutory provisions if raised). Ratio vs. Obiter: Ratio - remand is warranted where adjudicatory orders below fail to demonstrate considered evaluation of the factual matrix and documentary material; grant of opportunity and a speaking order are mandatory steps before sustaining additions under section 68. Obiter - the Tribunal's exhortation as to the scope of enquiries the AO should undertake is guidance rather than binding precedent. Conclusion: The Tribunal set aside the CIT(A) order and restored the issue to the file of the Assessing Officer for de novo assessment; direction to afford adequate opportunity to the assessee and to pass a speaking assessment order was given. The appeal was treated as allowed for statistical purposes pending fresh adjudication.