2015 (9) TMI 136 - AT - Income Tax

Unexplained share application money - accommodation entry in the garb of share capital - CIT(A) deleted the addition - Held that - There was a search on M/s. B.C. Purohit & Co. on 12.04.2005 and detailed investigation was made by the Department on the basis of evidence collected. During the course of search, it was found that assessee was providing entries in form of gift, loans, share application money, share investment and long term capital gain in shares not only to the assessee but other cases also. On the basis of this search, the assessee was also covered under section 133A of the IT Act in survey proceedings on 03.05.2005 to confront these evidences. As per Annexure-A3 seized from residence of Shri Bal Chand Purohit situated at G-1/103, Kamal Apartments, Bani Park, Jaipur during the course of search revealed that there was an entry of cheque and cash received from various parties. There are number of companies with the details of entries provided with amount. The name of the assessee company also figured on these pages and the modus operandi admitted by Shri Kripa Shankar Sharma in his statement recorded on 12.04.2005 that cash was received from the entry receiver parties and cheques were issued through various companies opened by Shri Bal Chand Purohit Group. He categorically admitted on 21.09.2004 that he received ₹ 6,00,000/- in cash from M/s. Soni Hospital and on 22.09.2004 two entries of ₹ 3,00,000/- each were given to M/s. Soni Hospital which were routed through M/s. Artline Finvest Pvt. Ltd. and M/s. Arpan Agro Pvt. Ltd. Similar other details were also found in seized material. The companies were managed by Shri Kripa Shankar Sharma for providing accommodation entries and he was getting commission by providing accommodation entries. It is further found fact that Shri Sunil Verma, a peon, has been shown as Director in number of companies who had also admitted on 26.04.2005 that these companies did not have any business but providing entries by receiving cash from the beneficiaries and after depositing in the bank account of these companies, cheques are issued to the beneficiaries. Some of the companies addresses were found on vacant plots. This group not only providing accommodation entries to the assessee but other persons also. The AO issued notices under section 133(6) of the IT Act for verification but notices were received back with postal remarks no such party exists at the given address , in case of share capital of ₹ 20,00,000/-. The ld. CIT (A) followed the decision in case of M/s. Lovely Exports (2008 (1) TMI 575 - SUPREME COURT OF INDIA). But recently Hon ble Bombay High Court in the case of M/s. Major Metals Ltd. Vs. UOI, (2012 (4) TMI 227 - BOMBAY HIGH COURT) by following Supreme Court decision in the case of Lovely Exports (supra) has held that creditworthiness and financial standing of the cash creditor is to be proved by the appellant under section 68 of the Act. The Hon ble Gujarat High Court decision in the case of Blessing Construction (2013 (10) TMI 154 - GUJARAT HIGH COURT) which has been confirmed by Hon ble Supreme Court in SLP vide 2015 (9) TMI 55 - SUPREME COURT OF INDIA wherein the creditworthiness in case of cash creditor is to be proved by the assessee. Recently Hon ble Delhi High Court in case of CIT vs. T. S. Krishna Kumar & Co. Ltd., 2014 (9) TMI 703 - DELHI HIGH COURT has held that under section 68 the identity, genuineness and creditworthiness of the cash creditor is to be proved by the appellant. Repaying the loan through account payee cheque is not a conclusive evidence. The case law referred by the ld. D/R of Hon ble Supreme Court in case of N. Tarika Properlty Invest (P) Ltd. (2015 (9) TMI 54 - SUPREME COURT OF INDIA) is squarely applicable in case of assessee. Now, after considering the Hon ble Supreme Court decision in case of Lovely Exports (supra), we have come to the conclusion that in case of share capital, the creditworthiness along with genuineness of transaction, identity of person is also required to be proved by the assessee. Accordingly we reverse the order of ld. CIT (A). - Decided in favour of revenue.

Summary

Issues Involved:
1. Deletion of the addition of Rs. 99,00,000/- made by the AO on account of unexplained share application money.

Analysis of Judgment:

Issue 1: Deletion of the Addition of Rs. 99,00,000/- on Account of Unexplained Share Application Money

Brief Facts:
The assessee, running a hospital, filed a return of loss of Rs. 2,82,73,070/- for the A.Y. 2005-06. During scrutiny under section 143(3) of the IT Act, the AO discovered that the assessee received share application money from entities linked to M/s. B.C. Purohit & Co., known for providing accommodation entries. A survey under section 133A was conducted, revealing that the share application money was shown as received from certain entities operated by M/s. B.C. Purohit & Co. The AO concluded that the transactions were not genuine, adding Rs. 99,00,000/- to the income of the assessee.

AO's Observations:
The AO noted that M/s. B.C. Purohit & Co. was involved in a racket providing accommodation entries through bogus entities. The modus operandi included receiving cash from parties wanting accommodation entries, rotating the money through various bank accounts, and issuing cheques or drafts to the parties. The AO identified the roles of entry operators, beneficiaries, bogus individuals, bogus companies/firms, and middlemen in this scheme. The AO found that the assessee received entries in the form of share application money from several companies operated by the entry operators.

Assessee's Defense:
The assessee argued that the amounts were received through banking channels, and the parties were income tax assessees with PANs, proving their genuineness. However, the assessee failed to provide evidence regarding the genuineness of the share application money or produce the relevant parties for examination.

CIT (A)'s Decision:
The CIT (A) allowed the appeal, stating that the assessee had filed subscription forms containing complete details of the subscribers, including their PANs. The CIT (A) noted that the primary documents were in the AO's custody and that the companies were registered under the Companies Act and were existing income tax assessees. The CIT (A) relied on various judicial precedents, including the Delhi Tribunal's decision in Sky High Properties Pvt. Ltd. vs. ITO, which held that the onus on the company is limited to proving the identity of the shareholders in the case of share capital.

Revenue's Appeal:
The Revenue argued that the AO had proved the transactions were bogus, and the assessee had not discharged its burden of proving the genuineness of the transactions. The Revenue cited various judicial precedents, including the Supreme Court's decision in N. Tarika Property Invest (P) Ltd. vs. CIT, which held that PAN alone cannot be accepted as proof of identity and that the creditworthiness and financial standing of the cash creditor must be proved by the assessee.

Tribunal's Decision:
The Tribunal reversed the CIT (A)'s order, emphasizing the need to prove the identity, genuineness, and creditworthiness of the cash creditor under section 68 of the IT Act. The Tribunal noted that the assessee failed to produce the relevant parties for examination and that the AO's investigation revealed the transactions were accommodation entries. The Tribunal cited recent judicial precedents, including the Bombay High Court's decision in Major Metals Ltd. vs. UOI and the Delhi High Court's decision in CIT vs. T. S. Krishna Kumar & Co. Ltd., which upheld the requirement to prove the creditworthiness and genuineness of transactions involving share capital.

Conclusion:
The Tribunal allowed the Revenue's appeal, holding that the assessee failed to prove the genuineness and creditworthiness of the share application money, and the addition of Rs. 99,00,000/- made by the AO was justified. The Tribunal's decision emphasized the importance of proving the identity, genuineness, and creditworthiness of the cash creditor under section 68 of the IT Act.