2016 (4) TMI 853 - AT - Income Tax

Addition u/s 68 - Held that - The addition made by the AO and deleted by the learned CIT (A) represented by the increase in share capital of the assessee cannot be treated as unexplained cash credits in the hands of the assessee. No hesitation to conclude that the assessee has provided necessary details including the ward/circle where the share applicants were assessed to income tax and discharged the onus cast on it. The share applicants were also allotted shares and the details were made available. The AO has not brought anything on record to dispute the facts/details furnished by the assessee. The AO has not found any discrepancy in the books of account and bank accounts maintained by the assessee. Thus, in our considered opinion, in views of facts as narrated above and the judicial pronouncements, the share capital to the extent of ₹ 24.00 lacs stands explained - Decided in favour of assessee

Issues Involved:
1. Validity of the addition of Rs. 24,00,000 as unexplained cash credits under Section 68 of the Income Tax Act, 1961.
2. Adequacy of the evidence provided by the assessee to prove the genuineness of the transactions.
3. The burden of proof and the role of the Assessing Officer in verifying the details provided by the assessee.

Detailed Analysis:

1. Validity of the Addition of Rs. 24,00,000 as Unexplained Cash Credits under Section 68 of the Income Tax Act, 1961:
The Department reopened the assessment under Section 148 based on information that the assessee had introduced unaccounted money of Rs. 24,00,000 through accommodation entries. The Assessing Officer (AO) added Rs. 24,00,000 to the income of the assessee as unexplained cash credits under Section 68. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition, leading to the Department's appeal.

2. Adequacy of the Evidence Provided by the Assessee to Prove the Genuineness of the Transactions:
The assessee had shown receipt of Rs. 24,00,000 as share application money/share capital from seven companies. The AO observed that there were significant cash deposits in the bank accounts of these investors around the time of issuing cheques to the assessee. Despite the assessee providing affidavits, copies of income tax returns, and balance sheets, the AO concluded that the creditworthiness of the companies was not proven and added the amount under Section 68.

The CIT(A), however, noted that the assessee had provided comprehensive documentation, including:
- Name and address of the shareholders
- Income Tax particulars of the shareholders
- Share application forms
- Confirmation of shareholders regarding share capital subscribed
- Affidavits regarding the share capital subscribed
- Copies of return of allotment filed with the Registrar of Companies (ROC)

The CIT(A) held that the AO did not verify these details or the income tax records of the shareholders/investing companies, nor did he bring any contrary evidence on record despite conducting independent inquiries under Section 133(6).

3. The Burden of Proof and the Role of the Assessing Officer in Verifying the Details Provided by the Assessee:
The Tribunal emphasized that the assessee had discharged its burden by providing basic details required for verification of the identity, creditworthiness, and genuineness of the transaction. The AO's failure to verify these details and bring contrary evidence was critical. Citing precedents, the Tribunal noted that if the share application money is received from alleged bogus shareholders whose names are provided to the AO, the Department is free to reopen their individual assessments but cannot treat the subscribed capital as the undisclosed income of the company.

Precedents Cited:
- CIT vs. Divine Leasing & Finance Ltd.: The Hon'ble High Court observed that the company should not be harassed if it has provided all statutory share application documents and the AO fails to unearth any illegality.
- CIT Vs. Lovely Exports (P) Ltd.: The Supreme Court held that if the share application money is received from alleged bogus shareholders, the Department should proceed against the shareholders individually, not the company.
- CIT vs Nipun Auto Pvt. Ltd.: The High Court emphasized that the AO cannot shift the burden back onto the assessee without producing tangible material to doubt the veracity of the documents furnished by the assessee.
- Anu Industries Ltd. vs ACIT: The ITAT reiterated that the addition under Section 68 cannot be made if the assessee provides necessary details and the AO fails to dispute the facts or find discrepancies.

Conclusion:
The Tribunal concluded that the assessee had provided necessary details and discharged the onus cast on it. The AO did not bring anything on record to dispute the facts/details furnished by the assessee. Thus, the share capital of Rs. 24,00,000 was deemed explained, and the order of the CIT(A) was upheld, leading to the dismissal of the Department's appeal.

Result:
The appeal of the Department was dismissed.

Pronouncement:
The order was pronounced in the open court on 29/02/2016.

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