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2017 (11) TMI 1546 - AT - Income TaxUnexplained share application money - assessee has failed to conclusively prove the genuineness of the transactions - Held that - AO was not justified in making sweeping observations such as fabricated and prepared documents as a made-up affair and AO was not justified in drawing adverse inference against the assessee when the assessee company has led all the evidences including bank statement etc. AO has further gone wrong in drawing adverse inference on the basis of excel sheet which in fact support the case of the assessee. The AO was not justified in drawing adverse inference in respect of amount received from its director. The Director having appeared himself and having confirmed the amount being paid to the company and the assessment of the Director being made under Section 143(3), there was no reason for AO to make addition in the hands of the appellant company. The AO went wrong in drawing adverse inference on account of rotation of money from one Group Company to another Group Company. AO cannot sit into the judgment of the assessee Group Company about rotation of the funds so long the sources of the funds are explained. The assessee having discharged its onus fully, the Assessing Officer has made the addition merely on the basis of surmises and doubts. - Decided in favour of assessee.
Issues Involved:
1. Deletion of addition of ?4,15,00,000/- on account of unexplained share application money. 2. Justification of the Assessing Officer's (AO) adverse inference against the assessee. 3. Evaluation of the assessee's evidence to establish the identity, creditworthiness, and genuineness of the transactions. 4. Examination of the rotation of funds within group companies. 5. Applicability of legal precedents and judicial pronouncements. Issue-wise Detailed Analysis: 1. Deletion of Addition of ?4,15,00,000/- on Account of Unexplained Share Application Money: The Revenue appealed against the CIT(A)'s order which deleted an addition of ?4,15,00,000/- made by the AO under Section 68 of the Income Tax Act, citing unexplained share application money. The AO had questioned the genuineness of the transactions and the creditworthiness of the shareholders. 2. Justification of the Assessing Officer's (AO) Adverse Inference Against the Assessee: The AO argued that the share capital was received from entities with insufficient income, justifying an adverse inference. The AO provided a detailed trail of the money flow to the assessee company. However, the assessee contended that the share capital was received from group companies and directors, with no adverse material or statements indicating accommodation entries. The assessee provided detailed evidence, including bank statements and balance sheets, to establish the source of funds. 3. Evaluation of the Assessee's Evidence to Establish the Identity, Creditworthiness, and Genuineness of the Transactions: The assessee submitted extensive documentation, including bank statements, income tax returns, and balance sheets, to establish the identity, creditworthiness, and genuineness of the transactions. The CIT(A) found that the assessee had provided sufficient evidence to prove the source and source of the source of funds. The Tribunal agreed with the CIT(A), noting that the assessee had discharged its onus under Section 68. 4. Examination of the Rotation of Funds Within Group Companies: The AO raised concerns about the rotation of funds within group companies, suggesting that these were sham transactions. The Tribunal, however, found that the funds' movement within group companies was a normal business decision and not indicative of bogus transactions. The Tribunal emphasized that the rotation of funds, as long as the sources are explained, cannot be grounds for declaring transactions as sham. 5. Applicability of Legal Precedents and Judicial Pronouncements: The Tribunal referenced several judicial pronouncements to support its decision. It cited cases such as Craftpac Containers P Ltd Vs ITO, Nemi Chand Kothari Vs. CIT, and Sarogi Credit Corporation Vs. CIT, which established that the assessee is not required to prove the source of the source of investment. The Tribunal also referred to judgments like CIT vs. Shiv Dhooti Pearls & Investments Ltd. and CIT vs. Fair Finvest Ltd., which emphasized that the AO must conduct meaningful inquiries and cannot rely solely on general inferences or investigation reports. Conclusion: The Tribunal concluded that the AO's adverse inference was not justified, given the extensive evidence provided by the assessee. The CIT(A)'s order was upheld, and the Revenue's appeal was dismissed. The Tribunal emphasized that suspicion cannot replace legal proof and that the assessee had fully discharged its onus under Section 68. The order was pronounced in the open court on 20.11.2017.
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