An Assessing Officer is liable to prove that share application money is assessable as unexplained cash credit

 It has been recently held by the ITAT Delhi in the case of Mithila Credit Services Ltd vs. ITO, being ITA No. 1078/Del/2013 that the burden of proof lies upon the Assessing Officer to prove that share application money should be assessed as unexplained cash credit.

 Brief facts of the case:

 In the relevant year the appellant carried on the financing business. The assesee filed its return of income for the Assessment Year 2002- 03 on 5.07.2002 stating its income to be nil. The case was picked up for scrutiny. The assessment was completed as per section 147 and 148 of the Income Tax Act vide order dated 28.03.2007 by the Assessing Officer by making the additions of Rs. 4,00,000/- under section 68 of the Act.

 Being aggrieved by the said addition the appellant preferred an appeal before the Ld. CIT (A), who dismissed the same by order dated 14.01.2013. Being dissatisfied with the said order of the Ld. CIT (A), the assessee filed an appeal before the ITAT Delhi challenging the validity of the reopening of the case under section 148 and 147 of the Income Tax Act.

The grounds of appeal:

 The grounds of appeal were as follows –

 1. That the Ld CIT(A) has erred in law in confirming the assessment of the Assessing Officer without having jurisdiction as per law;

 2. That the Ld CIT (A) has erred in law in not serving the mandatory notice under section 148 of the Act.

 3. The Ld. CIT (A) has erred in confirming the act of the A.O. without complying with mandatory conditions as per sections 147 to 151 of the Act.

 4. The Ld. CIT (A) has erred in confirming the addition of Rs. 4, 00,000/- by the AO as per section 68 of Income Tax Act, 1961 due to share application money received from M/s. Winsome Portfolio (P) Ltd. and M/s. Weal Iron and Steel Co. (P) Ltd.

 5. The addition and the impugned assessment of the AO are contrary to law and are void ab initio, and are not sustainable in law.

Arguments of both the sides:

 The Ld. AR submitted that the above reopening of the assessment is vague. It has been done not in accordance with the law. The reasons stated do not reveal that the said transaction is an accommodation entry. The Ld. AR tried to convince us that there is no basis of making such serious allegations by the AO. The AO has reached at a pre-determined conclusion to reopen the assessment without any cause of action. The reasons have no basis to support its correctness. The Ld. AR stated that there was no cause and effect relationship for the Assessing Officer to reopen the assessment. It was also argued that there was no nexus to conclude that income has escaped assessment to reopen the case. It was stated that as the essential ingredients for reassessment are missing, so the order was a nullity. The reopening cannot be based on a rumor and that there should be material based on which the Assessing Officer can reopen a case.

  A mere jumping into a conclusion that an income has escaped assessment cannot be the cause of action for a proceeding. It was contended that the two companies applied for the share which was a genuine transaction and it was not accommodation entries. It was again contended that the department had no concrete material against the assessee; as such it was a clear violation of natural justice against the assessee. It was further contended that only on the basis of a suspicion a case cannot be reopened on the ground that the assessee has escaped assessment and there is non-disclosure of material facts. Hence such the re-opening was bad in law and should be set-aside.

 The Ld. DR contended that during the assessment proceeding, the assessee was informed about the data received from the Directorate of Income Tax (Inv) and the assessee was given opportunity to substantiate its claim with relevant supporting evidences to discharge its onus under section 68 of the Act. In spite many repeated opportunities, the assessee could not do so for which the Assessing Officer made inquiries with the bankers regarding the alleged share applicants, which revealed huge deposits of cash in their accounts. On further verification it was found that money was transferred to the bank account of the assessee on the pretext of share application from a firm M/s. Gupta & Gupta. The Assessing Officer had summoned M/s Gupta & Gupta, to verify the claim which was received unserved with the remark that no such firm existed. According to the Ld. DR, the assessee failed to produce the parties for verification of its claim. Thus accordingly after serving a notice on 28.03.2007 and after providing the opportunity to assessee to prove his defense, the assessment was completed on 30.11.2007. The Ld. DR submitted that the genuineness of the transaction was in serious doubt.

 It was also submitted by the Ld. DR that the assessee had filed a copy of the acknowledgement of filling income tax return of the two companies for the Assessment Year 2001-02 only where the companies had declared a total loss. The entries in their respective bank accounts showed huge cash deposits. The summons issued to the party from whom these two companies had allegedly received money returned as the existence of the company was not found at the address which was furnished by them. The assessee did not produce the said persons during the assessment proceedings for verification. According to the Ld. DR the assessee failed to discharge its onus under section 68 of the Act and wanted to deviate from the main issue of receiving accommodation entries, which was proved through evidences.

 The Ld. DR relied upon the order in the case of AGR Investment Ltd. Vs. Additional Commissioner of Income Tax and another (2011) 333 ITR 146 in which it was held that a transaction involving Rs. 27 lakhs constituted new information for an assessee and represented undisclosed income. It was not a change of opinion. In the light of the said decision the Ld. DR prayed that the order of the Ld. CIT (A) should be upheld and it should not be interfered with.

The judgment:

The Tribunal applied the propositions laid down in the case laws cited by the appellant to the facts of the case. The Tribunal held that they were not inclined to uphold the order of the Ld. CIT (Appeals). The order of the CIT (Appeals) was set-aside. The documents referred by the Ld. DR such as affidavit, confirmation letters etc. were considered. It was held that an addition cannot be sustained only based on inferences. As a result the appeal was allowed and the impugned order of the Ld. CIT (A) was set aside. The said order was pronounced by the ITAT Delhi in the open court on 23.05.2014.