2009 (12) TMI 727 - AT - Income Tax

Unexplained cash credit u/s 68 - share application money unexplained - amount was never received as share capital/share application money but a camouflaged transaction - AO noted that as per the report of investigation wing it was found that the referred five companies were not carrying on actual business but were engaged in the business of providing accommodation entries and assessee is one of the beneficiaries of such accommodation entries HELD THAT - In this case existence of share applicants has been shown by the assessee on papers which even could not be substantiated by proof that the existence is on the address provided to the assessee by the share applicants. the existence of share applicants were not proved. Therefore, the papers submitted itself by the assessee do not prove the existence of share applicant factually. Therefore merely on certain papers produced by the assessee it cannot be said that these share applicants were in existence who have actually applied for shares and were allotted the shares. The fact also remains that now the shares are acquired by the family members of the directors at much lesser price. This fact also should have been examined. The CIT (A) has deleted the addition for the reason that since the AO has not made any enquiry after the appellant furnished all these particulars, it has discharged its onus and no addition is called for u/s 68. The CIT (A) has also not examined whether the share applicant had any creditworthiness and the transaction was genuine. In such a situation the CIT (A) erred in deleting the addition as the AO failed to make any enquiry. Rather it was incumbent upon the CIT (A) to carry the enquiry further and should have done what the AO failed to do. As decided in Kapurchand Shrimal v. CIT 1981 (8) TMI 2 - SUPREME COURT it is well known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh, unless forbidden from doing so by statute. Since no further evidence is available before us to give a finding that the cash credit during the year has been proved, and since the authorities below also failed to conduct necessary enquiries in this regard, we remit the matter back to the file of the AO. The assessee is directed to place necessary evidence so as to justify the identity and creditworthiness of the creditor and genuineness of the transaction. For statistical purposes, the appeal is treated as allowed.

Issues Involved:
1. Deletion of addition of Rs. 12,50,000 under section 68 related to share application money.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68:

The Revenue's appeal challenges the deletion of an addition of Rs. 12,50,000 under section 68 of the Income-tax Act, 1961. The assessee-company, engaged in manufacturing medicines, received share application money from five companies. The Assessing Officer (AO) found that these companies were not conducting actual business but were providing accommodation entries. The AO required the assessee to produce the principal officers of these companies along with their books of account. The assessee provided various documents, including certificates of incorporation, applications for shares, confirmations, affidavits, board resolutions, PAN cards, income tax return acknowledgments, and audited balance sheets.

The AO analyzed the bank statements and concluded that the deposits were primarily in cash before issuing cheques for share capital, suggesting the transactions were not genuine. Summons issued to the share applicants returned unserved or with reports that the companies did not exist at the given addresses. The AO concluded that the transactions were camouflaged and added the amount as unexplained cash credit under section 68.

Findings of the Commissioner of Income-tax (Appeals):

1. The addition was based on information from the investigation wing.
2. The assessee submitted confirmations and other documents but could not produce the directors.
3. The AO disregarded the evidence without controverting the affidavits.
4. No further action was taken to verify the addresses from the Registrar of Companies or the investigation wing.
5. The AO refused the assessee's request for cross-examination.
6. The AO did not provide the basis for adverse findings to the assessee.
7. The AO did not prove that the money was the assessee's own.
8. The AO shifted the burden of proof to the assessee without discharging his onus.
9. The onus to prove that the share capital was accommodation entries lies on the Department.
10. Only the identity of the subscribers needs to be proved for capital receipts.
11. The assessee provided sufficient documentary evidence of the subscribers' identity.
12. The AO ignored the evidence provided by the assessee.
13. If there was doubt about the source of investment, the addition should have been made in the hands of the companies, not the assessee.
14. The Commissioner (Appeals) concluded that the transactions were genuine and deleted the addition.

Tribunal's Analysis:

The Tribunal noted that the AO attempted to verify the existence of the share applicants and found that they did not exist at the given addresses. The assessee did not provide further proof of their existence. The shares were later acquired by the directors and their relatives at a lower price, raising further doubts about the transactions. The Tribunal held that the Commissioner (Appeals) erred in deleting the addition without verifying the creditworthiness and genuineness of the transactions. The Tribunal emphasized that it was the duty of the appellate authority to correct errors and issue appropriate directions.

The Tribunal remitted the matter back to the AO to examine the nature of the credit and verify whether it was properly explained. The assessee was directed to provide necessary evidence to justify the identity, creditworthiness, and genuineness of the transactions.

Conclusion:

The Tribunal allowed the appeal for statistical purposes and remitted the matter back to the AO for further examination. The order was pronounced in the open court on December 31, 2009.

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