2010 (12) TMI 1055 - AT - Income Tax

Addition - Unexplained income u/s 68 - Share capital money - As per the case of CIT vs. Victor Electrodes Ltd. 2010 -TMI - 76018 - DELHI HIGH COURT , it has been clearly laid down by the Hon ble Delhi High Court that there is no legal obligation on the assessee to produce some director or representative of the applicant companies before the AO, and, therefore, failure of assessee to produce them could not, by itself, have justified the additions made by the AO, when the assessee had furnished documents, on the basis of which, the AO, if he so wanted, could have summoned them for verification - Similarly, merely because directors of share applicant companies were not found available at the addresses given, that by itself is not sufficient for the AO to reject assessee s case when the assessee has furnished all documents relating to share applicants, such as their PAN, details of income-tax assessment, registration of companies under Companies Act and bank details - Decided in favour of assessee.

Issues Involved:
1. Deletion of addition under Section 68 of the IT Act, 1961 on account of share capital money.
2. Opportunity for cross-examination of witnesses.
3. Establishing the identity, genuineness, and creditworthiness of share applicants.
4. Reliance on Investigation Wing's report.
5. Legal principles and judicial precedents applicable to share application money.

Detailed Analysis:

1. Deletion of Addition under Section 68 of the IT Act, 1961 on Account of Share Capital Money:
The Revenue appealed against the CIT(A)'s order, which deleted the addition of Rs. 3.47 crores made under Section 68 of the IT Act, 1961. The AO had added this amount, suspecting it to be undisclosed income, as the share applicants were allegedly non-existent companies. The CIT(A), however, found that the identity of the share applicants was established through PAN, CIN, and other documents. The AO's failure to provide evidence to the contrary or to conduct independent inquiries led the CIT(A) to delete the addition.

2. Opportunity for Cross-Examination of Witnesses:
The CIT(A) noted that the AO did not provide the assessee with an opportunity to cross-examine the parties whose statements were relied upon by the Investigation Wing. The AO's refusal to allow cross-examination was deemed unjustified, as it is a fundamental right in the process of appreciating evidence. The CIT(A) emphasized that the lack of cross-examination rendered the statements of the Investigation Wing's witnesses inadmissible.

3. Establishing the Identity, Genuineness, and Creditworthiness of Share Applicants:
The CIT(A) found that the assessee had provided sufficient documentation to establish the identity and genuineness of the share applicants, including PAN, CIN, confirmations, and bank details. The AO did not bring any adverse material to challenge these documents. Judicial precedents, such as CIT vs. Lovely Exports (P) Ltd., were cited to support the view that once the identity and genuineness are established, the burden shifts to the Revenue to prove otherwise.

4. Reliance on Investigation Wing's Report:
The AO's reliance on the Investigation Wing's report was criticized by the CIT(A) for being based on statements from unrelated persons without proper verification. The CIT(A) observed that the AO did not conduct independent inquiries or reconcile discrepancies between the Investigation Wing's findings and the actual service of notices to the share applicants.

5. Legal Principles and Judicial Precedents Applicable to Share Application Money:
The CIT(A) and the Tribunal referred to several judicial pronouncements, including CIT vs. Lovely Exports (P) Ltd., CIT vs. Value Capital Services (P) Ltd., and CIT vs. Victor Electrodes Ltd., which held that the identity and genuineness of share applicants can be established through PAN, bank details, and other documents. The AO's failure to provide contrary evidence or to conduct further investigations led to the conclusion that the addition under Section 68 was unjustified.

Conclusion:
The Tribunal upheld the CIT(A)'s order, emphasizing that the AO's actions were not in line with established legal principles and judicial precedents. The deletion of the addition was justified as the assessee had sufficiently proven the identity and genuineness of the share applicants, and the AO failed to provide an opportunity for cross-examination or to bring any adverse material on record. The appeal by the Revenue was dismissed.

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