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2022 (2) TMI 1398 - AT - Income Tax


Issues Involved:
1. Addition of Rs. 1,95,00,000/- as unexplained cash credits under section 68 of the Income Tax Act.
2. Violation of principles of natural justice due to lack of cross-examination.
3. Non-appreciation of affidavits from share applicants/shareholders.
4. Reliance on the Commission report versus other evidence.
5. Genuineness, creditworthiness, and identity of the investor companies.

Issue-Wise Analysis:

1. Addition of Rs. 1,95,00,000/- as unexplained cash credits under section 68 of the Income Tax Act:
The assessee, a private limited company engaged in commodity trading, issued 90,500 shares at a premium, aggregating to Rs. 9.05 crores. The Assessing Officer (AO) treated the share capital and premium as unexplained cash credits under section 68 of the Act, citing that the investor companies were paper companies with no real business activities. The AO observed that the investor companies had negligible income, no significant assets, and were involved in accommodation entries managed by entry providers. The AO added Rs. 9.05 crores to the assessee’s income, which was partly confirmed by the CIT(A) for Rs. 1.95 crores.

2. Violation of principles of natural justice due to lack of cross-examination:
The assessee argued that the assessment was made in violation of natural justice as cross-examination of various persons, whose statements were relied upon, was not granted. The CIT(A) accepted the additional evidence and sought a detailed enquiry report from DDIT(Inv) Unit-3(3), Kolkata, which did not find adverse findings for five of the eight investor companies. However, the CIT(A) did not provide an opportunity for the assessee to rebut the investigation report, which was deemed unjustified by the tribunal.

3. Non-appreciation of affidavits from share applicants/shareholders:
The assessee furnished affidavits from the share applicants/shareholders confirming the investments. The AO did not give credence to these affidavits, considering them insufficient to prove the genuineness of the transactions. The tribunal noted that the affidavits were notarized and should have been given due consideration unless disproved by the revenue.

4. Reliance on the Commission report versus other evidence:
The CIT(A) relied heavily on the Commission report from DDIT(Inv) Kolkata, which identified two companies as Jama Kharchi companies and one company not found at the given address. The tribunal highlighted that the Commission report is not binding and should be considered along with other evidence. The tribunal found that the CIT(A) erred in relying solely on the Commission report without considering other documentary evidence provided by the assessee.

5. Genuineness, creditworthiness, and identity of the investor companies:
The tribunal examined the identity, creditworthiness, and genuineness of the transactions with the investor companies. For five companies, there were no adverse remarks from the Commission report, and some were subject to scrutiny assessments under section 143(3) of the Act, establishing their existence. For the remaining three companies, the tribunal found that the CIT(A) did not provide an opportunity for the assessee to rebut the findings and did not consider other documentary evidence. The tribunal held that the assessee had discharged its onus under section 68 by providing necessary details and documents, including PAN, ITR, balance sheets, and affidavits.

Conclusion:
The tribunal allowed the assessee's appeal, directing the AO to delete the addition of Rs. 1.95 crores, and dismissed the revenue's appeal, upholding the deletion of Rs. 7.1 crores by the CIT(A). The tribunal emphasized the importance of considering all evidence and providing an opportunity for rebuttal before drawing adverse inferences.

 

 

 

 

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