2017 (2) TMI 267 - AT - Income Tax

Addition u/s 68 - proof of genuineness of the transactions - Held that - No doubt the initial onus placed upon the assessee can be said to have been discharged by providing confirmations, ITR s, balance sheets etc of the said companies. However it shifts back to the assessee when the assessee has been required to produce the directors of these 8 closely held companies keeping in mind the fact that the assessee is a private limited company whose nature of activity necessarily would be known to only its close knit circle of friends, relatives and associates thus what were the facts which persuaded these 8 shareholders to make an investment in shares of the said company to the extent of ₹ 5 lakh each are necessary facts which are required to be taken into consideration and the burden which shifts back to the assessee in the facts of the present case is not be discharged. While so holding, it may not be out of place to note yet again that the assessee company is a private limited company, the shareholders are also claimed to be private limited companies and the Ld.AR has stated that the assessee may not be in a position to produce the directors of the 8 private limited companies. The wisdom of the said submission is left open to the assessee who is required to prove genuineness of the transactions. Accordingly, for the reason given hereinabove the impugned order is set aside and the issue is set aside back to the file of the CIT(A) with a direction to decide the same by way of a speaking order in accordance with law addressing the facts on record. - Decided in favour of revenue for statistical purposes

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act for unexplained share application money.
2. Validity of the CIT(A)'s order based on the facts and law.

Detailed Analysis:

Issue 1: Deletion of Addition Made Under Section 68 of the Income Tax Act for Unexplained Share Application Money

The Revenue challenged the deletion of an addition of ?40,80,000 made under Section 68 of the Income Tax Act by the CIT(A). The Assessing Officer (AO) had reopened the case based on information from the Investigation Wing, requiring the assessee to explain the receipt of accommodation entries amounting to ?40,00,000 from various parties. The AO sent notices under Section 133(6) to these parties, who responded with confirmations, bank statements, ITRs, and balance sheets. However, the AO issued summons under Section 131 for personal deposition of the directors of these companies, which was not complied with, leading to the addition being made.

The CIT(A) deleted the addition, noting that the assessee provided confirmations, bank statements, ITRs, and balance sheets of the share applicants, which the AO acknowledged. The CIT(A) found that these companies had substantial financial worth and good bank balances, which established their creditworthiness. The CIT(A) directed the AO to send information to the assessing officers of these companies for further investigation but concluded that the addition made under Section 68 was not justified.

Issue 2: Validity of the CIT(A)'s Order Based on the Facts and Law

The Revenue argued that the CIT(A)'s order was erroneous as it did not consider the evidence showing that these were dummy companies. The AO had provided multiple opportunities for the assessee to produce the directors for personal deposition, which was not complied with. The Revenue relied on the jurisdictional High Court's decision in CIT vs NR Portfolio Pvt. Ltd., which emphasized that mere filing of confirmations and PAN details does not establish the genuineness and creditworthiness of the transactions. The AO's repeated directions to produce the directors were to verify the genuineness of the transactions, which the CIT(A) failed to address.

The assessee argued that all necessary evidence was provided to the AO and questioned what additional information could be obtained from the directors' deposition. The assessee relied on the jurisdictional High Court's decision in CIT vs Oasis Hospitalities Pvt. Ltd., which held that providing identification and confirmations along with necessary details was sufficient to prove identity, genuineness, and creditworthiness.

The Tribunal found that the CIT(A) did not address the repeated opportunities given to the assessee to produce the directors for deposition, which was crucial to verify the genuineness of the transactions. The CIT(A) also failed to examine whether these companies were engaged in genuine business or were created to launder black money. The Tribunal noted that the CIT(A) acknowledged that money was transferred from balance sheets without paying taxes but did not follow his own advice to the AO to investigate further.

The Tribunal referred to the decisions of the jurisdictional High Court and the Apex Court, which held that mere filing of incorporation certificates and PAN details was not sufficient to establish the genuineness of the subscriber companies when there was material to show they were paper companies. The Tribunal concluded that the CIT(A)'s order suffered from fundamental flaws and set aside the order, remanding the issue back to the CIT(A) for a fresh decision with a speaking order addressing the facts on record.

Conclusion:

The appeal of the Revenue was allowed for statistical purposes, and the issue was remanded back to the CIT(A) for a fresh decision in accordance with the law, providing a reasonable opportunity of being heard to the assessee.

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