2019 (6) TMI 1531 - AT - Income Tax

Addition u/s 68 on bogus share application money received - HELD THAT - Assessee had received share application money from four parties i.e. M/s Victor sales Pvt. Ltd, M/s Shipra Fabrics Pvt. Ltd, M/s Santoshima Lease Finance Investment India Pvt. Ltd and M/s Dolex Commercial Pvt. Ltd. The AO made additions by holding that the identity, credit worthiness of the lender and the genuineness of the transaction were not proved. Whereas the assessee had placed on record the documents in the shape of share application form, resolution of respective companies, memorandum and articles of the companies, copies audited statement of accounts, bank statements of respective companies and also copies of acknowledgement of income tax return filed for A.Ys. 2009-10, 2011-12 and 2015-16. Apart from above, documents in the shape of copies of confirmation of the respective parties and the copies of letters filed by all the four parties pursuant to notice issued u/s. 133(6) of the Act. The assessee had fully explained the nature and source of amount received as share application money and AO had not pointed out any mistake on any of the particulars furnished by the assessee and/or the parties directly. It is also important to mention here that all the parties responded to the notices u/s 133(6) of the Act and submitted all the required documents /particulars. - Decided in favour of assessee.

Issues Involved:
1. Deletion of addition made by AO under Section 68 for bogus share application money.
2. Rate of tax applied by AO.
3. Condonation of delay in filing Cross Objection.

Issue-Wise Detailed Analysis:

1. Deletion of Addition Made by AO under Section 68 for Bogus Share Application Money:

The primary issue in this case pertains to the deletion of an addition of ?1,75,00,000 made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, on the grounds of bogus share application money. The AO reopened the assessment based on information from the Assistant Director of Income Tax (Investigation), Mumbai, indicating that the assessee had received accommodation entries from entities controlled by a hawala operator, Vipul Vidhur Bhatt. The AO issued notices to the assessee to prove the identity, creditworthiness, and genuineness of the transactions, which the assessee allegedly failed to do.

The assessee argued that they had provided all necessary documents, including share application forms, resolutions, bank statements, audited accounts, and income tax returns of the four parties involved: M/s. Victory Sales Pvt. Ltd., M/s. Shipra Fabrics Pvt. Ltd., M/s. Santoshima Lease Finance & Investment (India) Pvt. Ltd., and M/s. Dolex Commercial Pvt. Ltd. The assessee also submitted that the AO did not provide the information and statements used against them, thus violating the principles of natural justice.

The Commissioner of Income Tax (Appeals) [CIT(A)] found that the assessee had furnished sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions. The CIT(A) relied on various judicial precedents, including the Supreme Court's decision in CIT v. Lovely Exports Pvt. Ltd. and the Bombay High Court's decisions in CIT v. Gagandeep Infrastructure Pvt. Ltd. and CIT v. Orchid Industries Pvt. Ltd., which held that if the assessee provides sufficient documentary evidence, the onus shifts to the revenue to prove otherwise.

The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, noting that the assessee had complied with all notices and provided all required documents. The ITAT emphasized that the AO did not pinpoint any defects in the documents provided by the assessee and that the principles of natural justice were not followed as the assessee was not given an opportunity to rebut the evidence used against them. The ITAT dismissed the revenue's appeal, affirming that the addition under Section 68 could not be sustained.

2. Rate of Tax Applied by AO:

The assessee contended that the AO applied an incorrect tax rate of 42.23% instead of the applicable rate of 33.99% for the Assessment Year (AY) 2009-10. The assessee had filed an application under Section 154 of the Act for rectification, which was still pending.

The CIT(A) found that since the addition under Section 68 was deleted, the issue of the tax rate became infructuous. The ITAT agreed with this finding, noting that the deletion of the addition rendered the issue moot.

3. Condonation of Delay in Filing Cross Objection:

The assessee filed a Cross Objection (CO) with a delay of 32 days, citing reasons in an affidavit. The revenue opposed the condonation of the delay.

The ITAT considered the reasons provided by the assessee and, following the principles laid down by the Supreme Court in Land Acquisition Collector v. Mst Kitzi, condoned the delay and admitted the CO for hearing on merits. However, since the ITAT had already upheld the CIT(A)'s order and dismissed the revenue's appeal, the CO became academic.

Conclusion:

The ITAT dismissed both the revenue's appeal and the assessee's CO, upholding the CIT(A)'s order that deleted the addition under Section 68 and rendered the issue of the tax rate moot. The ITAT also condoned the delay in filing the CO but found it academic in light of the dismissal of the revenue's appeal.

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