2015 (12) TMI 518 - AT - Income Tax

Addition u/s 68 - addition on account of share application money received by the assessee Held that - In the instant case the addition is made u/s 68 of the Act on the ground of unexplained cash credit. As per the provisions of sec. 68, the initial onus lies upon the assessee to prove the nature and the source of amount credited in his books of accounts. We find that this initial onus was discharged in the instance case by the assessee by furnishing the documents like memorandum of association, article of association, share application, certificate of incorporation, acknowledgement of ITR s, audited accounts, etc. of the concerned companies. Thereafter, in our view, the onus shifted upon the Department and it was for the Department to bring on record the relevant material to show that why inspite of the above stated documents, the addition is still to be made in the hands of the assessee. In the instance case, the Department has endeavored to discharge its burden on the basis of statements recorded by it of the persons mentioned above. We find that the assessee requested for cross-examination of the makers of the statements. But strangely, the Assessing Officer did not take any step to allow effective opportunity to the assessee to cross-examine the makers of the statements. The Assessing Officer did not pursue the matter further. Thus, we find that the assessee was not allowed any opportunity to cross-examine the persons who made the statements at the back of the assessee. In our considered view, the statements of those persons cannot be read against the assessee. See case of Kishinchand Chellarm (1980 (9) TMI 3 - SUPREME Court) and Chartered Speed Pvt. Ltd. 2015(3) TMI 809 - GUJARAT HIGH COURT . We find force in the argument of the assessee that the statements of the persons mentioned above are not admissible evidence against the assessee. In absence of these statements, we find that no other material has been brought on record by the Revenue to show that why still the amount in question should be treated as income of the assessee when the assessee furnished all the documents which were available with it to discharge the onus which was upon it u/s 68 of the Act. In the above circumstances, in our considered view, the addition was made solely based upon the inadmissible and unreliable material - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the addition of Rs. 3.80 crores as unexplained cash credit under Section 68 of the Income Tax Act.
2. Validity of the assessment proceedings and the opportunity for cross-examination.
3. Evaluation of the evidence provided by the assessee to prove the genuineness of the share application money.

Detailed Analysis:

1. Legality of the Addition of Rs. 3.80 Crores as Unexplained Cash Credit:
The Assessing Officer (AO) added Rs. 3.80 crores as unexplained cash credit under Section 68, citing that the share application money received from various companies was not satisfactorily explained. The AO's conclusion was based on statements from directors of the investor companies and a key individual, Shri. Deepak Patwari, who admitted to providing accommodation entries. The AO argued that the assessee did not know the directors, could not produce them, and had no direct communication with the investor companies. The AO also noted that the companies were found to be non-existent at the provided addresses, and the supposed middleman, Shri. Rajendra Prasad Singla, had expired, making verification impossible.

2. Validity of the Assessment Proceedings and Opportunity for Cross-Examination:
The assessee contended that the AO's proceedings were flawed due to the lack of a valid notice under Section 131 for summoning the director on a public holiday and the denial of the right to cross-examine the individuals whose statements were used against the assessee. The Commissioner of Income Tax (Appeals) (CIT(A)) agreed, noting that the statements were recorded behind the assessee's back and that the AO did not provide an opportunity for cross-examination, thus violating principles of natural justice. The CIT(A) also highlighted that the case was reopened under Section 147 for verification purposes, which is not permissible under the Act.

3. Evaluation of the Evidence Provided by the Assessee:
The assessee provided substantial documentation, including Memorandum of Association, Article of Association, share application forms, certificates of incorporation, income tax returns, affidavits from directors, audited accounts, and bank certificates. These documents demonstrated that the share application money was received through banking channels and supported the identity, creditworthiness, and genuineness of the transactions. Despite this, the AO ignored these documents and relied solely on the statements obtained during the investigation.

Conclusion:
The ITAT upheld the CIT(A)'s decision to delete the addition of Rs. 3.80 crores, stating that the AO's reliance on inadmissible statements without allowing cross-examination was unjustified. The ITAT emphasized that the initial burden of proof under Section 68 was discharged by the assessee through substantial documentation, and the AO failed to provide concrete evidence to counter this. The ITAT also noted that the reopening of the case for verification purposes was beyond the scope of Section 147. Consequently, the appeal of the Revenue was dismissed.