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2012 (8) TMI 198 - HC - Income TaxAddition u/s 68 - unexplained amounts received towards Share Capital money - ITAT deleted the addition - Held that - Viewing a pattern in the way funds were moved into the accounts of those investors was common to each of them as the amounts were received within a few days or weeks before the shares were allotted and there was no material to show how they knew that shares could be purchased - AO s efforts to get them involved, through summons were unsuccessful and the applicant made no attempt to assist the AO in these proceedings - the material provided about the share applicants financial and fiscal standing was sketchy as they did not respond to summons under Section 131. Thus alleged investors belong to a Group who were not carrying on any real business activity and were engaged in the business of providing accommodation entries working as entry operators - the inferences drawn by the AO were justified and warranted - addition to a commission amount paid to the accommodation entry providers out of the undisclosed income of the company to assessee s income - against assessee.
Issues Involved:
1. Legitimacy of the addition of Rs.1,00,40,000/- under Section 68 of the IT Act, 1961. 2. Legitimacy of the addition of Rs.2,51,000/- on account of commission paid to entry operators. Detailed Analysis: 1. Legitimacy of the Addition of Rs.1,00,40,000/- under Section 68 of the IT Act, 1961: Facts and AO's Findings: The assessee declared a total income of Rs.72,741/- for AY 2006-07, with book profits of Rs.3,50,40,745/-. The AO scrutinized the return and found that the assessee received Rs.1,00,40,000/- as Share Capital money from four parties. Three of these parties were identified as accommodation entry providers. The AO issued summons to these parties, but they did not comply. The AO noted that the amounts were routed through multiple accounts and added Rs.1,00,40,000/- under Section 68, concluding that the transactions were not genuine. Appellate Commissioner's Findings: The Commissioner of Income Tax (Appeals) [CIT(A)] relied on the ruling in CIT v. Lovely Exports Private Limited, stating that the onus of proving entries was discharged by the assessee upon furnishing relevant particulars. The CIT(A) deleted the addition, asserting that the AO could not legitimately bring the amount to tax once the assessee provided necessary details. ITAT's Findings: The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s order, stating that the assessee had furnished confirmations, copies of ITRs, and bank statements of the share applicants. The transactions were through account payee cheques, and the identity of the share subscribers was established. The ITAT observed that the AO did not bring any evidence to show that the share application money was the assessee's undisclosed income. High Court's Analysis: The High Court noted that the AO had conducted a thorough inquiry and found a pattern in the movement of funds. The share applicants did not respond to summons, and the financial details provided were sketchy. The Court emphasized that the AO's findings were based on proper appreciation of material and attending circumstances. The Court held that the Appellate Commissioner and ITAT erred in deleting the addition, as the AO's inferences were justified and warranted. Conclusion: The High Court set aside the orders of the Appellate Commissioner and ITAT, restoring the AO's order to add Rs.1,00,40,000/- under Section 68. 2. Legitimacy of the Addition of Rs.2,51,000/- on Account of Commission Paid to Entry Operators: Facts and AO's Findings: The AO added Rs.2,51,000/-, being 2.5% of the commission amount paid to accommodation entry providers, to the undisclosed income of the company. This was based on the pattern of transactions and the role of entry operators. Appellate Commissioner's Findings: The CIT(A) deleted this addition as well, following the same rationale applied to the share capital money, asserting that the onus was on the revenue to prove that the amounts were undisclosed income. ITAT's Findings: The ITAT upheld the CIT(A)'s order, stating that the AO did not provide sufficient evidence to prove that the commission paid was from undisclosed income. High Court's Analysis: The High Court agreed with the AO's findings that the pattern of transactions and the involvement of entry operators justified the addition. The Court held that the Appellate Commissioner and ITAT failed to appreciate the detailed findings of the AO. Conclusion: The High Court set aside the orders of the Appellate Commissioner and ITAT, restoring the AO's order to add Rs.2,51,000/- as commission paid to entry operators. Final Judgment: The High Court allowed the revenue's appeal, answering the questions in the affirmative and in favor of the revenue. The impugned orders of the ITAT and Appellate Commissioner were set aside, and the AO's order was restored.
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