2018 (7) TMI 820 - AT - Income Tax

Unexplained cash credits - presumption u/s. 292C against assessee - proof of the identity and creditworthiness of the company - Held that - It is to be noted that the companies being enquired have invested in assessee-company in the Financial Year 2012-13 and how the statements of Shri Monohar Lal Nangalia and the so called statement of Shri Satish Shah, dt. 14-02- 2008 are relevant has not been explained either by the AO or by the CIT-DR. As seen from the assessment order, except relying on the report received from DDIT, there is no further evidence available with AO to hold that such companies are bogus. It is also true that the report from DDIT was received on 28-03-2016 and assessment has been completed on 30-03-2016 and there is no evidence placed on record that assessee was confronted with the above report, even though para 4.5 of the assessment order indicates that assessee was given a final show cause notice. The date on which it was given and the contents of the same were not placed on record in the paper book. It seems that assessee has appeared on 30-03-2016 the date on which assessment has been finalized, explaining all the evidences. Considering that the so called enquiry report is inconclusive and reliance on the so called statements of Shri Monohar Lal Nangalia taken in 2008 and 2014 have not been linked with the present investments of the above five companies, we are unable to rely on the evidence now placed on record by the Revenue in the form of Paper Book, that too without any prayer for admission of additional evidence. Surprisingly, Revenue has raised a ground that Ld. CIT(A) has violated Rule 46A, but when it came to their turn Revenue placed some unconnected statements which are not before AO or confronted to assessee at any point of time, before us to justify the stand of AO. It is also to be noted that this information has not been furnished to assessee either during the assessment proceedings or during the appellate proceedings. Therefore, no reliance can be placed on that. As pointed out by the Ld. Counsel, the provisions of Section 292C does not help the Revenue and the principles laid down by the Hon ble Supreme Court in the case of CIT Vs. Sunita Dhadda (2018 (3) TMI 1610 - SUPREME COURT OF INDIA) will certainly apply to the facts of the case. - decided against revenue

Issues Involved:
1. Deletion of share capital of ?5 Crores considered by AO as unexplained cash credits.
2. Violation of Rule 46A by Ld. CIT(A).
3. Genuineness of the share application money and the identity and creditworthiness of the subscriber companies.
4. Reliance on the report of DDIT(Inv.), Kolkata and statements of Shri Manohar Lal Nangalia.
5. Principles of natural justice and reliance on secondary evidence.

Issue-wise Detailed Analysis:

1. Deletion of Share Capital of ?5 Crores Considered by AO as Unexplained Cash Credits:
The assessee-company filed its return of income declaring a loss and book profits under the Income Tax Act. During scrutiny, the AO noticed a receipt of share application money from four companies totaling ?5 Crores. The AO, based on the DDIT(Inv.) report, concluded that the companies were non-existent and added ?5 Crores as unexplained cash credits under Section 68 of the Act. The assessee contested this, providing evidence of the companies' existence, their PAN numbers, and financial details. The Ld.CIT(A) reviewed the evidence, including PAN, ITRs, and bank statements, and concluded that the assessee had established the genuineness of the amount. The CIT(A) relied on various judicial precedents to support the decision to delete the addition made by the AO.

2. Violation of Rule 46A by Ld. CIT(A):
The Revenue argued that the CIT(A) violated Rule 46A by admitting additional evidence without providing the AO an opportunity to examine it. However, the AO confirmed that the relevant documents, such as the form of application for equity shares, PAN, minutes of meetings, and ITRs, were placed before him. The assessee clarified that no additional evidence was filed before the CIT(A). Consequently, the tribunal found no violation of Rule 46A, rendering the Revenue's ground infructuous.

3. Genuineness of the Share Application Money and the Identity and Creditworthiness of the Subscriber Companies:
The Ld.CIT(A) determined that the assessee had provided sufficient documentary evidence to prove the identity and creditworthiness of the subscriber companies. The companies were existing income tax assessees with PAN identities and bank accounts showing investment worthiness. The share applications were made through proper documentation and banking channels. The CIT(A) concluded that the transactions were genuine, and the AO's reliance on the DDIT's findings without further investigation was insufficient to prove otherwise.

4. Reliance on the Report of DDIT(Inv.), Kolkata and Statements of Shri Manohar Lal Nangalia:
The AO relied on the DDIT(Inv.), Kolkata's report, which indicated that the companies were shell entities based on undelivered notices and statements from Shri Manohar Lal Nangalia. However, the tribunal noted that the statements dated back to 2008 and 2014, predating the investments in question, and were not directly linked to the current case. The tribunal found that the AO did not provide these statements to the assessee during assessment or appellate proceedings, making them inadmissible as evidence.

5. Principles of Natural Justice and Reliance on Secondary Evidence:
The tribunal emphasized that the principles of natural justice were violated as the assessee was not confronted with the DDIT's report or the statements of Shri Manohar Lal Nangalia. The tribunal cited the Supreme Court's decision in CIT Vs. Sunita Dhadda, which held that secondary evidence cannot be relied upon without proper confrontation. The tribunal concluded that the Revenue failed to provide conclusive evidence to prove that the subscriber companies were bogus, thereby upholding the CIT(A)'s order.

Conclusion:
The tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s decision to delete the addition of ?5 Crores made by the AO under Section 68 of the Income Tax Act. The tribunal found no violation of Rule 46A and determined that the assessee had sufficiently proven the genuineness and creditworthiness of the transactions. The reliance on the DDIT's report and statements of Shri Manohar Lal Nangalia was deemed insufficient and inadmissible due to the lack of proper confrontation and relevance to the case.

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