2016 (5) TMI 364 - AT - Income Tax

Addition u/s 68 - cash credit - non-genuine transactions - bogus / accommodation entries in form of loan - Held that - Assessing Officer had not considered the evidence filed by the assessee during the course of assessment proceedings i.e. affidavits confirming the transaction, PAN number, complete addresses of creditors, copy of balance sheet, ITR for A.Y. 2008-09, bank statement and form No. 18. The assessee had discharged its onus by providing the requisite evidences to prove the identity, genuineness and creditworthiness of the cash creditors. The ld Assessing Officer herself had accepted the remaining cash creditors to the tune of ₹ 3.95 crores explained on the basis of similar evidences produced by the assessee as genuine. The loan/share capitals were received from the private limited companies. They also are filing return under the company s law and all information is available on MCA website. The ADIT report was not conclusive to held that the cash creditors were not genuine. It is not required under the law to prove the source of source U/s 68 of the Act. Primary burden lies on the assessee has been discharged by filing the requisite evidences before the Assessing Officer and shifted on the Assessing Officer to disprove the cash creditors transactions are not genuine or bogus. The share application money was received by the appellant and subsequently returned though banking channel. In case of 7 companies, the notices were served on it on given addresses. There is no evidence directly or indirectly with the Assessing Officer that the assessee had routed undisclosed money in the guise of share application money or loan. The ld DR s argument have also not convinced us that these parties were in accommodation entries in form of loan and share application money after charging certain commission as such no survey/search has been carried out on the creditors to prove that these companies are habitual to provide loan/share application money even there is no evidence with the ld DR for making such allegation during the course of written submissions - Decided against revenue

Issues Involved:
1. Acceptance of inadmissible evidence by CIT(A) to delete the addition under Section 68 of the Income Tax Act.
2. Validity of creditors' affidavits and the genuineness of transactions.
3. Onus of proof under Section 68 of the Income Tax Act.

Detailed Analysis:

Issue 1: Acceptance of Inadmissible Evidence by CIT(A)
The Revenue challenged the CIT(A)'s decision to accept evidence deemed inadmissible to delete an addition of ?2.16 crores under Section 68 of the Income Tax Act. The Assessing Officer (AO) had scrutinized the assessee's return, focusing on fresh cash capital introduced under various heads, including unsecured loans, reserves, and share application money. The AO received an interim report from ADIT, Kolkata, indicating that nine companies involved in transactions with the assessee were untraceable, and others could not explain the source of funds. The AO added ?2.16 crores to the assessee's income, considering the affidavits and other documents submitted by the assessee as insufficient to discharge the burden of proof under Section 68.

Issue 2: Validity of Creditors' Affidavits and Genuineness of Transactions
The CIT(A) examined the interim report and the AO's assessment, noting that the AO relied heavily on the interim report, which was inconclusive. The CIT(A) emphasized that the assessee had submitted confirmations, affidavits, PAN numbers, copies of returns of income, bank statements, and addresses of creditors. The CIT(A) found that the AO's rejection of these documents was unjustified and that the assessee had discharged its burden by providing substantial evidence. The CIT(A) referred to various judicial precedents, including the cases of Rajshree Synthetic Pvt. Ltd. and Aravali Trading Co., which outline the requirements for proving the identity, capacity, and genuineness of transactions under Section 68.

Issue 3: Onus of Proof Under Section 68 of the Income Tax Act
The CIT(A) concluded that the assessee had discharged its onus under Section 68 by submitting comprehensive documentary evidence. The AO's reliance on the interim report, without further investigation or communication with the assessee, was deemed insufficient. The CIT(A) highlighted that the AO had accepted similar evidence for other creditors, indicating inconsistency in the AO's approach. Judicial precedents, including the Supreme Court's decision in the case of Lovely Export Pvt. Ltd., were cited to support the view that once the assessee proves the identity and genuineness of the creditors, the onus shifts to the Revenue. The CIT(A) also noted that the AO did not provide any direct evidence to suggest that the assessee's undisclosed money was routed through these transactions.

Conclusion:
The Tribunal upheld the CIT(A)'s order, agreeing that the assessee had provided sufficient evidence to discharge its burden under Section 68. The AO's reliance on an inconclusive interim report and the failure to communicate findings to the assessee were found to be against the principles of natural justice. The Tribunal dismissed the Revenue's appeal, affirming the deletion of the ?2.16 crores addition.

Order Pronounced:
The order was pronounced in the open court on 21/03/2016, dismissing the Revenue's appeal.

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