2018 (4) TMI 875 - AT - Income Tax

Addition u/s 68 - disallowance of unexplained cash credit - assessee being beneficiary of accommodation entry - Held that - It is noteworthy that assessee was not supplied a copy of the statement of Shri Giriraj Vijayvargia nor any cross examination was allowed during the course of assessment proceedings. The assessee has throughout denied allegations of the AO of being beneficiary of accommodation entries given by Shri Giriraj Vijayvargia - each and every aspect has been touched upon on which the AO has relied while making the addition. A detailed and comprehensive findings has been given by CIT(A) as is reproduced as above and finally the CIT(A) deleted the addition by holding that the conclusion of the AO treating the transaction as sham was not proved on the basis of evidences on record and thus the CIT(A) narrated the said conclusion as derived on the basis of assumptions and surmises. CIT(A) also noted that assessee was not provided a copy of statement nor any cross examination was allowed to the assessee. CIT(A) has taken into account each aspect of the matter of investments in preference shares and sales thereof into account and only after noticing the infirmities and defects in the investigation/enquiry by the AO, a conclusion was reached by the Ld. CIT(A) in the appellate order which is correct and deserved to be upheld. - Decided against revenue

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act for unexplained cash credit.
2. Determination of the genuineness of the transaction of sale and purchase of shares.
3. Evaluation of the evidence and statements provided during the assessment proceedings.

Detailed Analysis:

Issue 1: Deletion of Addition under Section 68 for Unexplained Cash Credit
The primary issue in the appeal is the deletion of an addition of ?50 lakhs made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, which pertains to unexplained cash credit. The AO had made this addition on the grounds that the transaction involving the sale of preference shares was not genuine and was merely an accommodation entry. The AO based this conclusion on the statement of Shri Giriraj Vijayvargia, who, during a search operation, admitted to providing accommodation entries by accepting cash and issuing cheques after deducting a commission.

Issue 2: Genuineness of the Transaction of Sale and Purchase of Shares
The AO questioned the genuineness of the transaction involving the sale of preference shares of M/s. Sharda Cornpro Pvt. Ltd. and M/s. Silvershine Impex India Pvt. Ltd. to Shri Giriraj Vijayvargia. The AO doubted the transaction due to the high premium of ?500 per share, which was significantly higher than the face value of ?10, and the financial health of the companies involved. The AO also noted discrepancies in the dates of share transfer forms and the receipt of payment.

Issue 3: Evaluation of Evidence and Statements
The Commissioner of Income Tax (Appeals) [CIT(A)] considered various pieces of evidence and submissions made by the assessee. The CIT(A) noted that the transaction was properly recorded in the books of accounts, and the payment was made through a cheque, which was duly credited to the assessee's bank account. The CIT(A) emphasized that the AO did not provide any documentary evidence to substantiate the claim that the transaction was a sham. The CIT(A) also highlighted that the assessee was not given an opportunity to cross-examine Shri Giriraj Vijayvargia, nor was a copy of his statement provided to the assessee.

The CIT(A) concluded that the transaction was genuine, supported by documentary evidence, including board resolutions, share transfer forms, and records filed with the Registrar of Companies. The CIT(A) also addressed the AO's concerns about the high premium by explaining that the shares were redeemable at a higher value, making the investment profitable.

Conclusion:
After reviewing the evidence and arguments, the Tribunal upheld the order of the CIT(A), dismissing the appeal of the Revenue. The Tribunal agreed with the CIT(A) that the AO's conclusion of treating the transaction as sham was based on assumptions and lacked substantial evidence. The Tribunal also noted the procedural lapses, such as not providing the assessee with a copy of the statement and not allowing cross-examination, which weakened the AO's case. The Tribunal found that the CIT(A) had thoroughly examined the facts and evidence before reaching a decision, which was correct and deserved to be upheld.

Order:
The appeal by the Revenue was dismissed, and the order of the CIT(A) was upheld. The Tribunal pronounced the order in the open court on 16.04.2018.

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