2013 (5) TMI 329 - HC - Income Tax

Reopening of assessment - Whether Hon ble ITAT was correct in deleting the addition of Share Application Money u/s 68 of Act, when the AO had comprehensively proved that the applicants had no creditworthiness and their genuineness & identity was also doubtful? In light of cash deposits in accounts of applicants, their own admittance of providing accommodation entries whether Hon‟ble ITAT was correct in holding that genuineness of the transactions was established? Whether in view of report of Investigation Wing, the onus of assessee gets discharged in normal course by merely paper documents like PAN card, ROC documents, IT returns etc.? Held that - In the present case the Tribunal, ought to have adverted to the attempts made by the assessing officer to probe into the matter deeper by issuing notices/ summons to the subscriber-companies which evoked no response. The assessee no doubt submitted documentary evidence to show that the companies which subscribed to its shares were income tax assesses and they had also prepared profit and loss account, balance sheet, etc. but the evidentiary value of these on which the Tribunal has relied, ought to have been examined in the light of the stand taken by those companies in their assessment proceedings for the same assessment year. We have extracted a specimen letter written by the Director of Ethnic Creations Pvt. Ltd. wherein it has been admitted that the company carries on the business of providing accommodation entries for commission. Identically worded letters were written by the other companies to their respective assessing officer, which are all reproduced in the assessment order. It seems that the Tribunal has looked at only the evidence adduced by the assessee and has not adverted to the attempts made by the assessing officer in the course of the assessment proceedings to examine the evidence and discredit the same. Therefore the impugned order is set aside. The substantial questions of law are answered in favour of the revenue. The appeal is remitted to the Tribunal for being disposed of afresh.

Issues Involved:
1. Deletion of Share Application Money under Section 68 of the Income Tax Act, 1961.
2. Genuineness of Transactions in light of Cash Deposits and Accommodation Entries.
3. Onus of Assessee in proving the genuineness of transactions with paper documents.
4. Perverse Findings by the ITAT.

Issue-wise Detailed Analysis:

1. Deletion of Share Application Money under Section 68 of the Income Tax Act, 1961:
The primary issue was whether the ITAT was correct in deleting the addition of Share Application Money under Section 68 of the Income Tax Act, 1961. The Assessing Officer (AO) had argued that the applicants lacked creditworthiness, and their genuineness and identity were doubtful. The AO had noted that the companies subscribing to the share capital were established entry operators providing accommodation entries, as admitted in their sworn statements. The CIT (Appeals) had held that the AO did not verify the details furnished by the assessee and that the assessee had discharged its burden by providing necessary details, thus falling within the ratio of the Supreme Court judgment in CIT v. Lovely Exports (P) Ltd. The Tribunal agreed with the CIT (Appeals) and deleted the addition, observing that the assessee provided necessary details to establish the identity of the share applicants.

2. Genuineness of Transactions in light of Cash Deposits and Accommodation Entries:
The AO had traced the money trail and found that the first transfer of monies was always preceded by an equivalent amount of cash deposited in the account of the transferor, indicating a pattern typical of entry operators. The AO issued summons under Section 131, which were not complied with, and concluded that the transactions were not genuine. The Tribunal, however, did not consider the AO's attempts to probe deeper into the matter and relied on the documentary evidence provided by the assessee.

3. Onus of Assessee in proving the genuineness of transactions with paper documents:
The Tribunal held that the assessee had discharged its onus under Section 68 by providing necessary documents such as PAN numbers, income tax returns, and balance sheets of the share applicants. However, the High Court noted that the Tribunal failed to consider the AO's findings and the material evidence that discredited the particulars furnished by the assessee. The High Court referred to the judgment in Nova Promoters and Finlease P. Ltd., which distinguished cases where the AO makes no inquiry from those where the AO possesses material evidence discrediting the assessee's particulars.

4. Perverse Findings by the ITAT:
The High Court found that the Tribunal's findings were vitiated as it did not take into account the relevant material and evidence brought on record by the AO. The Tribunal's decision was based on a superficial and mechanical approach, ignoring the AO's attempts to verify the genuineness of the transactions and the conduct of the assessee. The High Court emphasized the need for the Tribunal to act judicially, consider all evidence, and record its findings comprehensively.

Conclusion:
The High Court set aside the Tribunal's order and remitted the appeal to the Tribunal for fresh disposal in accordance with law. The substantial questions of law were answered in favor of the revenue, highlighting that the Tribunal had not disposed of the appeal in the manner required by law and had ignored relevant material and evidence.

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