2017 (4) TMI 464 - AT - Income Tax

Addition on share application money - proof of credit worthiness and genuineness - Held that - Assessee has received share application money from two Pvt. Ltd. Companies amounting to ₹ 1,95,00000/- A.O. has examined the directors of these companies. From the said examination reproduced in the assessment order it is clear that these directors were totally unaware of the transactions of the company. From their statements the A.O. has brought on record that they could not corroborate the identity of this transactions the genuineness, credit worthiness. We find that just because these share applicant are companies and the money has been received through banking channel it doesn t mean that the identity credit worthiness and genuineness and the transactions are disclosed. The A.O. has made elaborate enquiry and has examined the directors of these companies which has clearly brought on record that these are accommodation entries. In such circumstances in our considered opinion the order of Ld. CIT-A is not at all sustainable. Accordingly as regards the issue of addition on share application money we set aside order of Ld. CIT-A and restored the A.O s order. Unsecured loan - AO has brought on record the statement of the directors and proprietors of the loan givers and on that basis he has come to the conclusion that the unsecured loans were actually accommodation entries. Ld. CIT-A has deleted the addition on the ground that some of the assessee s are assessed to tax in the same range. Hence their identities is not in doubt. That the balance sheet are on record hence this transactions are proved. We find that Ld. CIT-A here again has ignored the evidences and the statements obtain by the A.O. It is also not the case that Ld. CIT-A has examined the parties or the accounts himself. Hence the conclusion regarding the genuineness of these loans drawn by the Ld. CIT-A is also not at all sustainable. Thus we find that the deletion of addition unsecured loan by the Ld. CIT-A is not based upon any cogent finding. Only with regard to M/s. Nisha Enterprises where Ld. CIT-a has given a finding that a sum of the ₹ 25,50000/- was and opening balance which was already added u/s. 68 in the assessment year 2006-07. Hence except deletion of 25,50,000/- of this account we set aside the order by the CIT-A on the issue of deletion of unsecured loan. Hence, the addition by the AO in this regard is confirmed except for a sum of ₹ 25,50,000/- as deleted above. - Decided partly in favour of revenue

Summary

Issues Involved:
1. Deletion of addition regarding share application money by CIT(A).
2. Deletion of addition regarding unsecured loans by CIT(A).
3. Confirmation of additions regarding unexplained cash credits by CIT(A).
4. Interest charged by CIT(A).

Issue-wise Detailed Analysis:

1. Deletion of Addition Regarding Share Application Money by CIT(A):
The Assessing Officer (AO) noted that the assessee received share application money from two companies, M/s. Rubicon Pharmaceuticals Pvt. Ltd. and M/s. Bombaiya Films Pvt. Ltd., totaling ?1,95,00,000/-. The AO sought to verify the identity, creditworthiness, and genuineness of these transactions but found discrepancies during the examination of the directors. The directors admitted to being used for accommodation transactions and lacked awareness of the financial dealings. Consequently, the AO added the amount under Section 68 of the Income Tax Act, 1961.

The CIT(A) deleted the addition, referencing the Apex Court decision in the case of Lovely Exports, stating that the identity of the incorporated companies could not be denied and that the department could proceed against the shareholders if they were found bogus. However, the Tribunal found that the CIT(A) erred by not considering the AO's detailed findings and the directors' statements, which indicated accommodation entries. Thus, the Tribunal set aside the CIT(A)'s order and restored the AO's addition of ?1,95,00,000/-.

2. Deletion of Addition Regarding Unsecured Loans by CIT(A):
The AO observed that the assessee received unsecured loans totaling ?7,11,77,485/- from various entities. Upon examining the directors and proprietors of these entities, the AO concluded that these were accommodation entries. The CIT(A) deleted the additions for some entities, noting that they were assessed to tax in the same charge and their identities and capacities were evidenced by their balance sheets.

However, the Tribunal found that the CIT(A) ignored the AO's evidence and statements, which demonstrated that the transactions were not genuine. The Tribunal held that the CIT(A) did not conduct any independent verification and thus, the deletion was unsustainable. The Tribunal confirmed the AO's addition of unsecured loans, except for ?25,50,000/- from M/s. Nisha Enterprises, which was an opening balance already added in the previous assessment year.

3. Confirmation of Additions Regarding Unexplained Cash Credits by CIT(A):
The CIT(A) confirmed the additions of ?5,60,42,485/- as unexplained cash credits under Section 68 of the Income Tax Act, 1961. The Tribunal upheld the CIT(A)'s findings, noting that the assessee failed to substantiate the genuineness of the transactions despite filing loan confirmations and supporting documents. The Tribunal found no reason to interfere with the CIT(A)'s decision on this matter.

4. Interest Charged by CIT(A):
The Tribunal did not provide a detailed analysis regarding the interest charged by the CIT(A), indicating that this issue was not separately contested or elaborated upon in the judgment.

Conclusion:
The Tribunal dismissed the assessee's appeal and partly allowed the revenue's appeal. The Tribunal confirmed the AO's additions regarding share application money and unsecured loans, except for the deletion of ?25,50,000/- from M/s. Nisha Enterprises. The order was pronounced in the open court on 16.03.2017.