2015 (3) TMI 352 - AT - Income Tax

Bogus accommodation entry received from entry operator - addition u/s 68 deleted by CIT(A) - Held that - In the present case it is an admitted fact that the assessee furnished the evidences to prove the identity of the creditors/share applicants by furnishing their PAN number and copy of acknowledgment of Income-tax Return. The amount on account of share application was received through banking channel, copies of the confirmation alongwith affidavit of the parties were furnished. The assessee also furnished the copy of share application forms, copy of Form no. 2 filed with Register of Companies (ROC), showing allotment of shares to the applicants. Therefore, the assessee discharged the onus cast upon it, as such the ld. CIT(A) was fully justified in deleting the impugned addition made by the AO. Furthermore the ld. CIT(A) while deciding the issue in favour of the assessee relied upon the judgment of CIT Vs Dwarkadhish Investment Pvt. Ltd. (2010 (8) TMI 23 - DELHI HIGH COURT) and CIT Vs Lovely Exports (P) Ltd. (2008 (1) TMI 575 - SUPREME COURT OF INDIA), therefore, we do not see any infirmity in the order of the ld. CIT(A) and accordingly do not see any merit in this appeal of the department. - Decided against revenue.

Issues Involved:
1. Deletion of addition of Rs. 14,50,000/- made by the AO under Section 68 as bogus accommodation entry.
2. Applicability of the Supreme Court judgment in the case of Lovely Exports (P) Ltd. to the present case.
3. Burden of proof and the onus on the assessee to prove the genuineness of the share application money.

Detailed Analysis:

1. Deletion of Addition of Rs. 14,50,000/- under Section 68:

The department challenged the order of the CIT(A) which deleted the addition of Rs. 14,50,000/- made by the AO under Section 68 of the Income Tax Act, 1961. The AO had treated the share application money received by the assessee as bogus accommodation entries and added the amount to the income of the assessee. The AO's conclusion was based on the belief that the assessee was involved in money laundering and had received the share application money from entry operators. The AO found certain entries to be bogus after verification and thus made the addition.

The assessee, on the other hand, argued that the share application money was received through payee account cheques from six natural persons and one corporate entity, all of whom were assessed to Income Tax. The assessee provided various documents including confirmations from the share applicants, copies of Income Tax Return acknowledgments, share application forms, and bank statements to prove the genuineness of the transactions.

2. Applicability of the Supreme Court Judgment in Lovely Exports (P) Ltd.:

The CIT(A) relied on the Supreme Court's judgment in the case of Lovely Exports (P) Ltd., which held that if the share application money is received from alleged bogus shareholders whose identity is established, the revenue can proceed against such shareholders but not against the company. The CIT(A) observed that the AO had not brought any valid material to disprove the assessee's claim and that the assessee had discharged the initial onus of proving the identity, creditworthiness, and genuineness of the transactions.

The CIT(A) also noted that the AO did not confront the assessee with any material collected at the back of the assessee and did not provide an opportunity for cross-examination of third-party statements, thus rendering the additions unreliable.

3. Burden of Proof and Onus on the Assessee:

The CIT(A) concluded that the assessee had discharged its onus by providing sufficient evidence to prove the identity of the shareholders, their creditworthiness, and the genuineness of the transactions. The CIT(A) cited several judgments, including those of the Delhi High Court and the Supreme Court, which supported the view that once the initial onus is discharged by the assessee, the burden shifts to the revenue to disprove the claim.

The Tribunal, after considering the submissions of both parties and the material on record, upheld the CIT(A)'s order. The Tribunal noted that the assessee had furnished all necessary documents to prove the genuineness of the share application money and that the CIT(A) had rightly followed the judgments of the jurisdictional High Court and the Supreme Court. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the department's appeal.

Conclusion:

The Tribunal dismissed the appeal of the department, upholding the CIT(A)'s order which deleted the addition of Rs. 14,50,000/- made by the AO under Section 68. The Tribunal agreed with the CIT(A) that the assessee had discharged the initial onus of proving the genuineness of the share application money and that the revenue failed to bring any material evidence to disprove the assessee's claim. The Tribunal also affirmed the applicability of the Supreme Court's judgment in Lovely Exports (P) Ltd. to the present case.

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