2015 (6) TMI 163 - AT - Income Tax

Addition u/s 68 - money claimed to have been received as share capital - FAA deleted the addition - Held that - As in CIT VS. Lovely Export (2008 (1) TMI 575 - SUPREME COURT OF INDIA) which held that once the identity of the share holder have been established, even if there is a case of bogus share capital, it cannot be added in the hands of company unless any adverse evidence is not on record. Ld. First Appellate Authority has examined the documentary evidence filed by the assessee before the Assessing Officer as well as before him and held that the assessee has provided confirmations from all the parties as well as various evidences to establish the genuineness of the transaction, assessee has also relied upon the judgment of Nemi Chand Kothari Vs. CIT (2003 (9) TMI 62 - GAUHATI High Court) wherein it has held that it is a certain law that the assessee is to prove the genuineness of transaction as well as the creditworthiness of the creditor must remain confined to the transactions which have taken place between the assessee and the creditor. It is not the business of assessee to find out the source of money of creditors. Similar observation has also been given in the case of Hastimal (1962 (12) TMI 60 - MADRAS HIGH COURT) and Daulatram Rawatmal (1972 (9) TMI 9 - SUPREME Court). Thus the assessee has substantiated the transaction regarding share application money received by it was genuine transaction and the same were not accommodation entries. He did not find any evidence collected by the AO which could prove otherwise and deleted the additions in dispute. As regard to the addition of ₹ 12,500/- made on account of commission which was presumed to have been allowed by the assessee for obtaining the Hawala entry in dispute, the ld. CIT(A) observed that the Assessing Officer was not able to brought anything on record that it was assessee s own money which was rooted in the form of share application money and has rightly deleted the same. - Decided against revenue.

Issues Involved:
1. Deletion of addition of Rs. 5,00,000/- made under Section 68 with respect to money claimed to have been received as share capital from M/s Paras Infotech Pvt. Ltd.
2. Deletion of addition of Rs. 10,00,000/- made under Section 68 with respect to money claimed to have been received as share capital from Sh. V.K. Angami.
3. Non-appreciation of adverse evidences regarding inability to produce share applicants, absence of creditworthiness, and collusive evasion of enquiries.
4. Deletion of addition of Rs. 12,500/- as unexplained expenditure related to commission for raising share capital of Rs. 5,00,000/-.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 5,00,000/- under Section 68 from M/s Paras Infotech Pvt. Ltd.:
The Assessing Officer (AO) treated the share application money of Rs. 5,00,000/- received from M/s Paras Infotech Pvt. Ltd. as unexplained cash credit under Section 68. The AO relied on information from the Investigation Wing indicating that M/s Paras Infotech Pvt. Ltd. was involved in providing accommodation entries and was not carrying out any actual business activities. The AO issued a notice under Section 131 to the Principal Officer of M/s Paras Infotech Pvt. Ltd., but it was returned undelivered. The AO also noted a cash deposit in the company's bank account prior to issuing the cheque to the assessee.

The CIT(A) deleted the addition, stating that the assessee had provided sufficient documentary evidence such as confirmation, copy of ITR, and PAN card to establish the identity and creditworthiness of M/s Paras Infotech Pvt. Ltd. The CIT(A) emphasized that the AO had not conducted any independent investigation and had solely relied on the information from the Investigation Wing. The CIT(A) also cited various judicial pronouncements, including the Supreme Court's judgment in CIT vs. Lovely Export, which held that once the identity of the shareholder is established, the share application money cannot be added as undisclosed income of the company.

2. Deletion of Addition of Rs. 10,00,000/- under Section 68 from Sh. V.K. Angami:
The AO treated the share application money of Rs. 10,00,000/- received from Sh. V.K. Angami as unexplained cash credit under Section 68, as the entire amount was received in cash and the notice sent to Sh. Angami was returned unserved. The AO noted that the assessee had failed to provide sufficient evidence of Sh. Angami's identity and creditworthiness.

The CIT(A) deleted the addition, noting that the assessee had provided various documents such as a certificate certifying Sh. Angami as a Schedule Tribe, a copy of his election card, and a salary certificate. The CIT(A) also considered an affidavit from Sh. Angami confirming the investment. The CIT(A) held that the assessee had discharged the initial onus of establishing the bona fide of the transactions and that the AO had not brought any adverse evidence on record. The CIT(A) cited judicial pronouncements, including the Supreme Court's judgment in CIT vs. Lovely Export and other relevant cases, to support the deletion of the addition.

3. Non-appreciation of Adverse Evidences:
The AO argued that the assessee had failed to produce the share applicants, and there was an absence of creditworthiness and collusive evasion of enquiries into the sources of deposits. The AO relied on the statements given by Sh. Mukesh Gupta and his associates, who admitted to providing accommodation entries.

The CIT(A) held that the AO had not conducted any independent investigation and had solely relied on the information from the Investigation Wing. The CIT(A) emphasized that the assessee had provided sufficient documentary evidence to establish the identity and creditworthiness of the share applicants. The CIT(A) also noted that the AO had not brought any positive material or evidence to indicate that the share applicants were benamidars or fictitious persons.

4. Deletion of Addition of Rs. 12,500/- as Unexplained Expenditure:
The AO made an addition of Rs. 12,500/- as unexplained expenditure related to commission for raising share capital of Rs. 5,00,000/-. The AO presumed that the assessee had paid commission for obtaining the accommodation entry.

The CIT(A) deleted the addition, stating that the AO had not brought any evidence on record to prove that the assessee had paid any commission. The CIT(A) held that the AO's presumption was not supported by any material evidence.

Conclusion:
The Tribunal upheld the CIT(A)'s order, stating that the assessee had provided sufficient documentary evidence to establish the identity and creditworthiness of the share applicants. The Tribunal noted that the AO had not conducted any independent investigation and had solely relied on the information from the Investigation Wing. The Tribunal also cited various judicial pronouncements, including the Supreme Court's judgment in CIT vs. Lovely Export, to support the deletion of the additions. The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order.

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