2018 (6) TMI 1268 - AT - Income Tax

Addition u/s 68 - unexplained cash credit in the form of share capital issued by the assessee - CIT(A) has allowed the appeal of the assessee by holding that the assessee has discharged its onus by establishing the identity, creditworthiness and genuineness with regard to the transactions for allotment of shares - Held that - The assessee had furnished complete details to the AO regarding the transactions in question, which include confirmation, share application form, copy of bank account and their permanent account number. These companies (except M/s Chhoti Leasing & Finance Pvt. Ltd.) are also not covered in the list given by Sh. Aseem Gupta in his statement as being used for providing accommodation entries. As per the statement of Shri Aseem Gupta, the bank account no. 252 of Corporation Bank of M/s Chhoti Leasing & Finance Pvt. Ltd. was used for providing accommodation entries whereas assessee has received the amount from bank a/c no. 5043 on 08.09.2005 as evident from his bank statement placed at page No. 62 of the paper book. By filing number of identity of these share applicants and the assessee has specifically requested the Assessing Officer to enforce the attendance of Director of these companies. The assessee has prima facie discharged the onus on it. Further the statement of Shri Aseem Kumar Gupta was not provided to the assessee and no opportunity to cross examine was also given in spite of the specific request of the assessee. Thus, not providing the opportunity to cross examine, there is a violation of principles of nature justice. The Hon ble Supreme Court in the case of Andaman Timber Industries Vs. CCE 2015 (10) TMI 442 - SUPREME COURT has clearly held that denial of opportunity to the assessee to cross examine the witnesses whose statements were made the sole basis of the assessment is a serious flaw rendering the order a nullity. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act, 1961 on account of unexplained cash credits in the form of share capital.
2. Establishment of the identity, creditworthiness, and genuineness of the transactions concerning the allotment of shares.
3. Confrontation with evidence collected during the search proceedings and the opportunity for cross-examination.

Detailed Analysis:

1. Deletion of Addition under Section 68:
The primary issue was whether the CIT(A) erred in deleting the addition of ?1,09,00,000 made under Section 68 of the Income Tax Act, 1961, as unexplained cash credits in the form of share capital issued by the assessee. The CIT(A) deleted the addition by holding that the assessee had discharged its onus by establishing the identity, creditworthiness, and genuineness of the transactions concerning the allotment of shares. The CIT(A) noted that the burden of proof is not static and once the assessee provided relevant evidence, the burden shifted to the AO to disprove their genuineness with new facts. The CIT(A) relied on various decisions, including the Supreme Court's decision in CIT v. Lovely Exports (P.) Ltd. [2008] 216 CTR 195, which held that if the share application money is received from alleged bogus shareholders whose identity is produced, the revenue can proceed against such shareholders.

2. Establishment of Identity, Creditworthiness, and Genuineness:
The CIT(A) found that the assessee had provided extensive documentary evidence, including PANs, bank statements, cheque details, confirmations from shareholders, ROC return copies, and share allotment details, to establish the identity, creditworthiness, and genuineness of the share transactions. The CIT(A) noted that the AO could not bring any material to disprove the genuineness of the confirmations and other prima facie details filed by the assessee. The CIT(A) also observed that the AO did not provide an opportunity for cross-examination of the persons whose statements were relied upon in the assessment order, thus violating the principles of natural justice.

3. Confrontation with Evidence and Opportunity for Cross-Examination:
The CIT(A) emphasized that it is mandatory for the AO to confront the assessee with any material collected at the back of the assessee and to offer an opportunity for cross-examination of third parties whose statements are relied upon. The AO's failure to provide such an opportunity rendered the statements unreliable and the additions illegal. The CIT(A) cited several case laws supporting this view, including R.B. Shreeram Durga Prasad 176 ITR 169 (SC) and Jindal Vegetable (Delhi High Court).

Conclusion:
The ITAT upheld the CIT(A)'s decision, noting that the assessee had discharged its primary burden of proving the identity, genuineness, and creditworthiness of the share applicants. The AO's reliance on statements made by third parties without providing an opportunity for cross-examination was a serious flaw. The ITAT also noted that the AO did not make any meaningful inquiry or investigation to discredit the evidence provided by the assessee. The ITAT cited various judicial precedents, including the Supreme Court's decision in CIT v. Lovely Exports (P.) Ltd., to support its conclusion that the addition made by the AO was uncalled for and rightly deleted by the CIT(A). The appeal of the revenue was dismissed, and the cross-objection by the assessee was rendered academic.