2019 (4) TMI 1799 - AT - Income Tax

Addition u/s 68 - unexplained cash credits - HELD THAT - On going through the returned income filed by the Investor Companies, it was found that they have filed their returns of income at meager/low net income which ranges income in hundres to thousands only after claiming deductions. Thus, the assessee as well as the Investors have not justified for entering into such transaction. It also creates doubt in the explanation of assessee. It may also be noted here that four Investors from Kolkata have been operating from the same address. Three more Investors from Kolkata are also having the same address. Two Ludhiana parties have also given the same address, but, the postal authorities reported that no such company exist at the given address. These facts clearly show that though the assessee may be able to prove the identity of the creditors because they are assessed to tax, but, assessee failed to prove the creditworthiness of all the Investors as well as genuineness of the transaction in the matter Enquiry and investigations carried on by the A.O. reveal that the Investors do not have creditworthiness and that genuineness of the transaction has not been established by the assessee. Therefore, there was no justification for the Ld. CIT(A) to have deleted the entire addition. In view of the above discussion, we set aside the impugned Order of the Ld. CIT(A) and restore the Order of the A.O. Appeal of Revenue is allowed.

Summary

Issues Involved:
1. Deletion of addition of ?1.17 crores by CIT(A) on account of unexplained cash credits under Section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition by CIT(A):
The Revenue's appeal was directed against the order of the CIT(A)-XIX, New Delhi, which deleted the addition of ?1.17 crores made by the Assessing Officer (A.O.) under Section 68 of the Income Tax Act, 1961, for the Assessment Year 2004-2005. The A.O. had added this amount as unexplained cash credits.

Facts of the Case:
The assessee company filed a return of income declaring NIL income but paid tax under Section 115JB on book profit. During scrutiny assessment, it was noted that the assessee received fresh share application money amounting to ?1,54,40,710/-. The A.O. asked for details of the share application money, including copies of ITRs, audited accounts, and bank statements of the investors. Upon examination, it was found that several companies had not reflected the investment in their audited accounts.

A.O.'s Observations:
The A.O. noticed suspicious patterns in the bank statements of the investor companies, such as credit entries of similar amounts or cash deposits just before the debit entries favoring the assessee company. Some confirmations received were inconsistent with the assessee's records, and several companies failed to provide complete documentation or had non-existent addresses. Summons and notices issued under Sections 131 and 133(6) to verify the genuineness of the transactions were either not complied with or returned unserved. Consequently, the A.O. concluded that the assessee failed to prove the identity, creditworthiness of the investors, and genuineness of the transactions, leading to the addition of ?1.17 crores under Section 68.

CIT(A)'s Findings:
The CIT(A) deleted the addition, noting that the assessee provided confirmations, ITRs, balance sheets, and PAN details of the investors. The CIT(A) held that since the investor companies were incorporated and assessed to tax, the addition was unwarranted.

Revenue's Arguments:
The Revenue argued that the CIT(A) erred in deleting the addition. It highlighted several discrepancies, such as the same addresses for multiple investors, low income declared by investors, cash deposits before investments, and the assessee's failure to produce directors of the investor companies. The Revenue relied on various judicial precedents to support its contention.

Assessee's Defense:
The assessee contended that the investments were made through banking channels, and documentary evidence was provided to prove the identity, creditworthiness, and genuineness of the transactions. It argued that the CIT(A) correctly deleted the addition based on the evidence provided.

Tribunal's Analysis:
The Tribunal observed that the assessee received share application money from 16 parties. It noted that before the amounts were given to the assessee, there were credit entries of similar amounts in the investors' accounts, and in some cases, cash deposits were made before the investments. The Tribunal found several inconsistencies and suspicious patterns, such as non-existent addresses, lack of telephone numbers, and the same auditors for different investors. The Tribunal held that the assessee failed to prove the creditworthiness of the investors and the genuineness of the transactions.

Judicial Precedents:
The Tribunal referred to various judicial precedents, including the Supreme Court's judgment in the case of Pr. CIT (Central)-1 vs. NRA Iron & Steel Pvt. Ltd., which emphasized the assessee's obligation to prove the genuineness of transactions, identity, and creditworthiness of investors. The Tribunal concluded that the assessee failed to discharge this burden.

Conclusion:
The Tribunal set aside the CIT(A)'s order and restored the A.O.'s addition of ?1.17 crores under Section 68, allowing the Revenue's appeal. The Tribunal emphasized that the assessee failed to prove the creditworthiness of the investors and the genuineness of the transactions, leading to the justified addition by the A.O.