2019 (7) TMI 1576 - AT - Income Tax

Unexplained cash credit u/s 68 - notices issued under section 133(6) to parties were received back unserved - onus to prove - HELD THAT - We find from the returned envelopes as produced the reasons given by the postal authorities is incomplete address. Thus it is clear that due to wrong/incomplete address, the notices issued by the AO to some of the share applicants were received unserved. Once the reason of non delivery of the notices was known to the AO, then further steps could have been taken by the AO to conduct a proper enquiry. Instead of taking further steps, the AO asked the assessee to produce all the share applicants. The assessee submitted the letters from all six individual share applicants along with the affidavits wherein they have confirmed the investment in the shares of the assessee. Once the assessee has produced the letters and affidavits, then the primary onus on the assessee has been discharged. In respect of these companies, the AO has himself accepted that they have filed all the relevant details, ITRs, financial statements, bank statements and replies to the notices issued by the AO under section 133(6). Once all these documentary evidences were produced before the AO and the genuineness of these documents were not doubted by the AO, then the assessee has proved the identity of the share applicants which is otherwise cannot be disputed when these companies are tax assessees and their status is also available on the website of Ministry of Corporate Affairs/ROC. When these companies are assessed to tax, then merely because they have declared very less income in the return of income cannot be a reason for doubting their creditworthiness. The source of investment was already available with the AO from the financial statements as well as the bank accounts of these companies. We further note that in the case in hand, the AO has made the addition only on the basis of suspicion and not on the basis of any evidence or other material to show that these companies are either indulged in providing accommodation entries or having no source of investment. AO has not brought any material on record to show either these share applicant companies are providing accommodation entries or they are bogus paper companies. The AO has only expressed his doubt about the genuineness but this is only a suspicion without any basis. When the assessee has produced all the relevant documents which includes PAN, ITRs, financial statements, audit report, bank accounts, share applications etc. then in the absence of any contrary material to controvert or disprove the documentary evidence produced by the assessee, the addition made by the AO under section 68 is not justified. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of ?1,14,91,500/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961.

Detailed Analysis:

1. Addition of ?1,14,91,500/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961:

Facts and Circumstances:
The assessee, a private limited company engaged in manufacturing and trading of copper wire and strips, filed its return of income for the assessment year 2012-13. During scrutiny, the AO observed that the assessee had received share capital at a high premium from various concerns based in Kolkata. The AO questioned the creditworthiness and identity of the investors and the genuineness of the transactions, as the assessee could not produce the directors of these companies for examination. Notices issued under Section 133(6) to these companies were returned undelivered, and the AO noted discrepancies in the financial statements of the companies, leading to the addition of ?1,14,91,500/- as unexplained cash credit.

Assessee's Argument:
The assessee argued that the AO did not provide details of the notices issued under Section 133(6) and that some notices were sent to incorrect addresses. The assessee produced affidavits and other documentary evidence to establish the identity, creditworthiness, and genuineness of the transactions. The assessee contended that the AO's addition was based on suspicion without any contrary material or record.

Revenue's Argument:
The Revenue argued that the AO conducted an enquiry and issued notices under Section 133(6), which were returned undelivered. The AO found that the companies had very low income compared to their investments, indicating paper transactions. The AO also noted that the companies did not claim any rent for office space, suggesting non-genuine addresses. The AO's addition was based on the failure of the assessee to discharge its onus to prove the identity and creditworthiness of the share applicants and the genuineness of the transactions.

Tribunal's Findings:
The Tribunal noted that the AO did not specify the number of notices returned undelivered and that five companies had filed their returns of income, proving their identity. The AO's observation regarding non-current investments and low income from these investments led to suspicion but not conclusive evidence of non-genuine transactions. The Tribunal found that the AO issued notices to incorrect addresses and did not take further steps to conduct a proper enquiry. The assessee produced affidavits and documentary evidence, discharging its primary onus. The Tribunal held that the AO's addition was based on suspicion without any contrary material or evidence.

Legal Precedents:
The Tribunal referred to several decisions, including:
- CIT vs. ARL Infratech Ltd., where the High Court upheld the Tribunal's finding that the assessee had discharged its onus by providing PANs, mode of payment, and no direct or indirect relationship with the share applicants.
- CIT vs. Lovely Exports (P.) Ltd., where the Supreme Court held that if share application money is received from alleged bogus shareholders, the Department is free to reopen their individual assessments.
- CIT vs. Vacmet Packaging (India) Pvt. Ltd., where the High Court held that the assessee had discharged the onus of establishing the identity, creditworthiness, and genuineness of the transactions.

Conclusion:
The Tribunal concluded that the assessee had proved the identity and creditworthiness of the share applicants and the genuineness of the transactions through documentary evidence. The addition made by the AO under Section 68 was deleted as it was based on suspicion without any contrary material. The appeal of the assessee was allowed.

Result:
The appeal of the assessee was allowed, and the addition of ?1,14,91,500/- as unexplained cash credit under Section 68 was deleted.