2018 (10) TMI 61 - AT - Income Tax

Addition u/s 68 - undisclosed cash credit - accommodation entries - CIT (A) deleted the addition as held that since the identity and existence of the share applicants are true the share application money and the share capital have been routed through banking channel cannot be added in the hands of the assessee - Held that - In the present case assessee before lower authorities could not rebut the relationship of the assessee, a private limited company with Shri Tarun Goyal and his accomplices in making investment at such a huge premium. The surrounding circumstances and test of Human probabilities also shows that there is no reason to invest those companies in the shares of the assessee company at such a huge premium. Therefore the ratio laid down by the Hon Supreme court squarely applies in the case of assessee. Based on above, we are of the opinion that the ld CIT (A) has deleted the addition based on irrelevant documents, which does not prove the identity, creditworthiness, and genuineness of the shareholders/transactions. Therefore in view of above facts we reverse the order of the ld CIT (A) deleting the addition u/s 68 of the act of ₹ 1,94,00,000/- from 8 companies whose creditworthiness and genuineness of the transaction of issue of shares at a high premium and restore the order of the ld AO. - decided in favour of revenue Addition on account of commission paid on accommodation entries from undisclosed sources - Held that - As the accommodation entries are taken from Mr Tarun Goyal, CA, who has confirmed the rates of accommodation entries, we find no infirmity in the order of the ld AO in making addition on that basis where the assessee could not prove that no such expenditure is incurred. Accordingly, addition of ₹ 97,000/- of unaccounted expenditure is also confirmed. Ground No 2 of the appeal is allowed.

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act for unexplained cash credits.
2. Deletion of addition made for commission paid on accommodation entries from undisclosed sources.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68:

The Revenue challenged the deletion of an addition of ?1.94 crores made by the Assessing Officer (AO) under Section 68 of the Income Tax Act. The AO had added this amount as unexplained cash credits, arguing that the assessee failed to produce evidence regarding the identity, creditworthiness, and genuineness of the transactions related to the share capital issued at a premium to eight companies. The AO's investigation revealed that these companies were controlled by Mr. Tarun Goyal, an accommodation entry provider, and their directors were his employees.

The AO issued multiple notices and summons under Sections 143(2), 142(1), and 131, but the assessee failed to produce the directors of the share applicant companies. The AO noted discrepancies in the affidavits submitted by the assessee, such as mismatched signatures and outdated stamp papers. The AO concluded that the share applicants were merely name lenders and added the amount as undisclosed income under Section 68.

The CIT(A) deleted the addition, stating that the assessee had provided confirmation letters, share application forms, PAN details, bank statements, and Form 2 submitted to the ROC, thereby proving the identity and existence of the share applicants. The CIT(A) relied on various judicial precedents, including the Supreme Court's decision in Lovely Exports (P) Ltd., which held that if the share application money is received from alleged bogus shareholders, the Department is free to proceed against them, but it cannot be regarded as undisclosed income of the assessee company.

The Revenue argued that the CIT(A) failed to consider the AO's findings and the fact that the share applicants were not genuine investors but accommodation entry providers. The Revenue cited several judicial precedents to support its contention that the assessee had not discharged its onus of proving the identity, creditworthiness, and genuineness of the transactions.

The Tribunal agreed with the Revenue, noting that the assessee being a private limited company could not invite the public for subscription and should have known the share applicants. The Tribunal observed that the assessee failed to justify the high premium on the shares and did not produce the directors of the share applicant companies. The Tribunal concluded that the share application money was not genuine and restored the AO's addition of ?1.94 crores under Section 68.

2. Deletion of Addition for Commission Paid on Accommodation Entries:

The AO had also added ?97,000 as commission paid on accommodation entries, based on the statement of Mr. Tarun Goyal, who admitted to charging a commission for providing accommodation entries. The CIT(A) deleted this addition, reasoning that since the share capital addition was deleted, the commission addition should also be deleted.

The Tribunal disagreed with the CIT(A), stating that the addition for commission was based on the AO's findings and the assessee's failure to prove that no such expenditure was incurred. The Tribunal confirmed the AO's addition of ?97,000 for unaccounted expenditure.

Conclusion:

The Tribunal allowed the Revenue's appeal, restoring the AO's addition of ?1.94 crores under Section 68 and confirming the addition of ?97,000 for commission paid on accommodation entries. The Tribunal emphasized the importance of proving the identity, creditworthiness, and genuineness of transactions, especially when dealing with private limited companies and accommodation entries.

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