2019 (4) TMI 1988 - AT - Income Tax

Addition u/s. 68 - Onus to proof - unexplained cash credit in respect of share premium received by assessee - HELD THAT - In view of the evidences furnished by the assessee, we are of the view that the assessee has discharged its onus of proving the identity, genuineness and creditworthiness of the creditors/shareholders and fulfilled the requirement of ingredients of section 68 - Thus, the addition made u/s. 68 of the Act which is purely based on the investigation reports and statements recorded from PKJ and whose statements were not provided to the assessee for rebuttal and no cross examination was provided to assessee and therefore is in violation of principles of natural justice. No sort of enquiries were made by the AO to disprove the evidences furnished by the assessee. Assessing Officer accepted the subscription of share capital by the shareholders as genuine and no addition has been made in respect of the same. Assessing Officer treated only the share premium as unexplained cash credit. Having accepted the share capital as genuine the Assessing Officer cannot treat only the share premium as non-genuine and bring to tax as unexplained cash credit u/s. 68 of the Act. The addition cannot be sustained. Thus, we direct the Assessing Officer to delete the addition made u/s. 68 of the Act. - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act towards unexplained cash credit in respect of share premium received by the assessee.
2. Justification of the Assessing Officer's reliance on statements from third parties without providing cross-examination.
3. Consideration of evidence provided by the assessee to establish the genuineness, identity, and creditworthiness of the shareholders.
4. Applicability of judicial precedents and principles of natural justice in the assessment proceedings.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] which deleted the addition made under Section 68 of the Income Tax Act towards unexplained cash credit in respect of share premium received by the assessee. The Assessing Officer (AO) had treated the share premium received as unexplained cash credit based on statements from PKJ, who allegedly provided accommodation entries. However, the CIT(A) found that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions, and thus deleted the addition.

2. Reliance on Third-Party Statements Without Cross-Examination:
The AO relied heavily on the statements from PKJ without providing the assessee an opportunity for cross-examination. The assessee requested copies of the statements and cross-examination, which were not provided. The CIT(A) and the Tribunal held that such reliance without cross-examination violated principles of natural justice. The Tribunal noted that PKJ had retracted his statements and that reliance on such statements without allowing cross-examination was unjustified.

3. Consideration of Evidence Provided by the Assessee:
The assessee provided various documents to establish the genuineness, identity, and creditworthiness of the shareholders, including confirmations, ITR acknowledgments, audited financial statements, share application forms, and bank statements. The shareholders responded to notices issued under Section 133(6) and provided the requisite information. The CIT(A) and the Tribunal found that the assessee had discharged its initial burden of proof, and the AO did not bring any contrary evidence to disprove the assessee's claims.

4. Applicability of Judicial Precedents and Principles of Natural Justice:
The Tribunal referred to several judicial precedents, including the Supreme Court's decision in CIT v. Lovely Exports (P) Ltd., which held that if the share application money is received from alleged bogus shareholders, the department should proceed against those shareholders rather than adding the money as the assessee's income. The Tribunal also cited decisions from various High Courts emphasizing the need for the AO to provide cross-examination opportunities and to rely on concrete evidence rather than mere statements. The Tribunal concluded that the AO's actions violated principles of natural justice and that the addition under Section 68 could not be sustained.

Conclusion:
The Tribunal upheld the CIT(A)'s order deleting the addition made under Section 68, emphasizing that the assessee had provided sufficient evidence to prove the genuineness, identity, and creditworthiness of the shareholders. The reliance on third-party statements without providing cross-examination was deemed a violation of natural justice. The Tribunal directed the AO to delete the addition, and the appeal of the Revenue was dismissed.