2019 (4) TMI 2090 - AT - Income Tax

Addition u/s 68 - procurement of accommodation entries through share application money from nondescript companies - HELD THAT - As on perusal of the bank accounts of the share applicant companies filed in the paper book before us, we find that money has been deposited on various dates and almost equal amount has been withdrawn within a short period leaving a very small nominal balance. This trend has been observed almost in all the share applicants. The share applicants have paid share premium of Rs. 90 per share, whereas on perusal of the financial statement of the company for the year under consideration, we find that net profit during the year under consideration has been shown at Nil. We do not find any financial rational behind making investment by the share applicants companies at huge premium of Rs. 90 per share. No explanation has been furnished by the assessee along with evidences as to why the investor company had applied shares at a such high premium of Rs. 90 per share. In the instant case, on summon being issued by the AO, not a single director of those companies attended before the Assessing Officer and the document containing audited financial statements, balance sheet confirmation etc. have only been filed by post and that too when this fact of non-compliance by the share applicants was brought to the notice of the assessee. During physical verification by the Inspector of the office of the Assessing Officer, none of the share applicants was found at their given address. Relying on the decision of NRA Iron and Steel Private Limited 2019 (3) TMI 323 - SUPREME COURT we set aside the finding of the Ld. CIT(A) on the issue in dispute and hold that the assessee failed to discharge its onus as required under section 68 and the Assessing Officer is justified in treating the amount received against share application money as unexplained cash credit under section 68 of the Act. The corresponding commission amount is also held as unexplained. Accordingly, the grounds of the appeal of the Revenue are allowed.

Issues Involved:
1. Deletion of addition of Rs. 2,65,00,000/- under Section 68 of the Income Tax Act.
2. Deletion of addition of Rs. 1,32,000/- for commission paid for procurement of accommodation entries.
3. Admission of additional evidence under Rule 46A.
4. General errors in the CIT(A)'s order.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 2,65,00,000/- under Section 68 of the Income Tax Act:
The Revenue challenged the deletion of an addition of Rs. 2,65,00,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, concerning share application money received from nine private limited companies. The AO had deemed this amount as unexplained cash credit, asserting that the share application money was an accommodation entry. The AO's assessment was based on the observation that the share applicant companies had minimal business activities and their bank accounts showed money being deposited and withdrawn within short periods, leaving nominal balances. The AO also noted that the directors of these companies did not comply with summons to verify the transactions. The CIT(A) had deleted the addition, considering additional evidence such as income tax returns, audited balance sheets, and bank statements of the share applicant companies. However, the Tribunal found that the assessee failed to establish the identity, creditworthiness, and genuineness of the transactions, especially given the nominal income reported by the share applicants and the high share premium paid without financial justification. The Tribunal relied on the Supreme Court's principles in the case of NRA Iron and Steel Private Limited, which emphasized the necessity of proving the genuineness, identity, and creditworthiness of the investors. Consequently, the Tribunal set aside the CIT(A)'s order and upheld the AO's addition under Section 68.

2. Deletion of Addition of Rs. 1,32,000/- for Commission Paid for Procurement of Accommodation Entries:
The AO had made an additional assessment of Rs. 1,32,500/- as commission paid for obtaining accommodation entries, estimating a commission rate of 0.5% on the share application money. The CIT(A) had deleted this addition as well. However, the Tribunal, aligning with its decision on the primary issue of share application money, held that the corresponding commission amount was also unexplained. Thus, the Tribunal reinstated the AO's addition of Rs. 1,32,500/-.

3. Admission of Additional Evidence under Rule 46A:
The Revenue contended that the CIT(A) erred in admitting additional evidence under Rule 46A without proper justification. The CIT(A) had admitted various documents such as income tax returns, audited balance sheets, and bank statements of the share applicant companies. The Tribunal did not explicitly address the procedural aspect of admitting additional evidence but focused on the substantive evaluation of the evidence provided. It concluded that despite the additional evidence, the assessee failed to discharge its onus under Section 68 regarding the identity, creditworthiness, and genuineness of the transactions.

4. General Errors in the CIT(A)'s Order:
The Revenue argued that the CIT(A)'s order was erroneous and not tenable in law and on facts. The Tribunal, after examining the evidence and relying on the Supreme Court's decision in NRA Iron and Steel Private Limited, found that the CIT(A) had erred in deleting the additions made by the AO. The Tribunal concluded that the assessee did not satisfactorily prove the genuineness of the share application money and the associated commission, thereby allowing the Revenue's appeal.

Conclusion:
The Tribunal allowed the Revenue's appeal, reinstating the additions of Rs. 2,65,00,000/- under Section 68 and Rs. 1,32,500/- for commission, holding that the assessee failed to establish the necessary criteria of identity, creditworthiness, and genuineness of the transactions. The order was pronounced in the open court on 9th April 2019.

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