ITAT remands back Dubious Share Capital matter for violation of natural justice

The assessee filed his initial returns for the fiscal year 2012–13 in accordance with 143(3), which was approved. In response to alerts from the Investigation Wing that linked the assessee to suspicious transactions with another company and the acquisition of Rs. 3 Cr in share capital from businesses in Kolkata, reassessment procedures were initiated under Section 147. The AO decided to add 1.3 Cr as the money was transferred to the assessee that same day after being deposited in the client’s account, and another Rs. 3 Cr was added as a share premium from 11 businesses with dubious bank practices and a failure to reply to notices.

CIT(A)’s Decision: The said additions were contested by the assessee. Following a rehearing, CIT(A) upheld all additions in its amended order dated July 15, 2024. Aggrieved by the order of the CIT(A), the assessee filed an appeal before the Appellate Tribunal.

Issue Raised: Should cash transactions and unexplained share capital be deleted when the Investigation Wing discovered significant cash trail gaps and the assessee refused to cooperate with reassessment?

Tribunal’s Ruling: The Tribunal held that the assessee had not cooperated during the reassessment proceedings under Section 147 of the Income Tax Act, 1961, as neither the assessee nor the 11 share applicants replied to the notices, making it impossible to verify the applicants’ identities, creditworthiness, and genuineness. The AO also noticed similar cash deposits and immediate transfer patterns in the share applicants’ bank accounts, suggesting potential accommodation entries. According to the Tribunal, it was unfair that the assessee was not given access to the Inspector’s Report from March 12, 2019, which stated that no stock was discovered on the property. The Tribunal also recommended that the case be reheard for a fair opportunity to respond. Stressing the need to thoroughly examine the facts before drawing any conclusions, the tribunal cited CIT v. Jansampark Advertising & Marketing Ltd.

Therefore, the Tribunal determined that there was a violation of natural justice, thus remanded the matter back for fresh consideration after allowing the said appeal.

To Read Judgment, Download PDF Given Below