In a recent case, the Ranchi bench of the Income Tax Appellate Tribunal ( ITAT ) held that mere allegations of fake transactions cannot be the basis of further judicial proceedings. If any allegation arises against a party, it should be investigated in depth.
The assessee, Trishla Vyapaar Pvt. Ltd, filed an appeal to the tribunal against an order of the Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC), dated 31.01.2023 for the assessment year (AY) 2014-15. The assessee is a private limited company, and its account was selected for scrutiny through Computer Assisted Scrutiny Selection (CASS). Such scrutiny was due to suspicious transactions related to short-term capital loss and long-term capital gain on shares.
The assessing officer, on further scrutiny, assessed the assessee’s income to be ₹5 Crores and that the assessee company had adopted a device to evade taxes. The AO further explained that the colourable device was a sham arrangement adopted by the taxpayer to avoid taxes. The AO relied upon a decision by the Supreme Court in the case of McDowell & Co. that a colourable device comes within the purview of tax evasion.
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The AO observed that Trishala Vyapaar Pvt Ltd is a paper/bogus entity with no physical existence or business activity and is controlled mainly by Consortium Capital Pvt. Ltd or some other accommodation entry operators to facilitate the accommodation entry of pre-arranged bogus LTCG/STCL. The AO also held that despite issuing notices under sections 143(2) and 142(1), the assessee did not comply with those, and the AO made additions to the income found in the assessee’s account.
The assessee’s appeal to the CIT(A) was further disappointed as the CIT(A) upheld the order of the AO made under Section 143(3) of the Act. The CIT(A) held that the assessee was given adequate opportunities to be heard, but such opportunities were met with noncompliance. Also, the assessee had not submitted any evidence of the transactions made from their account.
In an appeal pursued at the ITAT, no one appeared on behalf of the assessee, and the Departmental Representative for revenue relied on the orders of the lower authorities. The DR stated that the assessee company is bogus and was involved in providing accommodation entry to book LTCG/STC, as the assessee carried out no business activity during the AY under consideration.
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On hearing the appeal, the ITAT held that the CIT(A) had passed an order under Section 143(3), read with Section 264 of the Act, that was erroneous and prejudicial to the revenue’s interest. The Tribunal held that the order was passed without making any enquiry, verification, or investigation regarding the genuineness of the source of receipt of share subscriptions or share capital/premium. The tribunal also shed light on a similar case at the tribunal against the CIT(A) of Hazaribagh in a separate appeal by the assessee, in which the AO was ordered to look at the issues afresh and conduct a proper inquiry.
The Tribunal consisting of Partha Sarathi Chaudhury (Judicial Member) and Ratnesh Nandan Sahay (Accountant Member) held that the modus operandi adopted by the CIT(A) is not satisfactory as no proper investigation had been done and to uphold the objective of justice directed to remand the matter back to the file of the CIT(A) to decide on the matter after considering all of the issues in depth. The tribunal also directed the assessee to comply with the investigation to be taken up by the CIT(A) and produce all necessary documents before the CIT(A) to make its case.
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