2018 (12) TMI 816 - AT - Income Tax

Addition on share premium treating the same as unexplained u/s 68 - nature & source of the share application received was fully explained by the assessee - Held that - In this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee cannot be brushed aside by the AO to draw adverse view cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, we hold that an addition cannot be sustained merely based on inferences drawn by circumstance. Both the nature & source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO s record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified - no addition was warranted under Section 68 - Decided in favour of assessee Addition of bogus purchases - ddition at 4% of the bogus purchases - Held that - We find that the CIT(A) has rightly applied the profit rate at the rate of 4% and we confirm the same. This issue of assessee s appeal is dismissed.

Summary

Issues Involved:
1. Validity of reopening under section 148.
2. Addition of share premium as unexplained cash credit under section 68.
3. Partial addition of bogus purchases.

Issue-Wise Detailed Analysis:

1. Validity of Reopening under Section 148:
The learned Counsel for the assessee did not press this issue and sought to withdraw it. The Departmental Representative had no objections, and hence, the issue of reopening was dismissed as withdrawn.

2. Addition of Share Premium as Unexplained Cash Credit under Section 68:
- Facts and AO's Findings: The assessee received share premium totaling ?6,10,50,000 from various parties. The AO treated this as unexplained cash credit under section 68 due to several reasons, including lack of relationship between directors and investors, failure to produce responsible persons from investor companies, layering of transactions, no communication or justification for the premium, and the implausibility of unrelated parties making huge investments without profit motives. The AO concluded that the transactions were merely accommodation entries.
- CIT(A)'s Observations: The CIT(A) confirmed the AO's addition, noting that the director of the appellant company failed to provide necessary information and did not attend proceedings, thereby not proving the genuineness of the transactions.
- Assessee's Arguments: The assessee contended that all necessary details, such as PAN numbers, bank statements, audited financial statements, and income tax returns of the investor companies, were provided. The identity, creditworthiness, and genuineness of the transactions were established, and the AO did not make any further inquiries to disprove these.
- Tribunal's Decision: The Tribunal held that the assessee had discharged its onus to prove the identity, creditworthiness, and genuineness of the share applicants. The AO did not conduct any investigation to disprove the documents furnished by the assessee. The Tribunal relied on the Bombay High Court's decision in CIT vs. Orchid Industries Pvt. Ltd. and deleted the addition made by the AO, allowing the appeal of the assessee on this issue.

3. Partial Addition of Bogus Purchases:
- Facts and AO's Findings: The assessee, engaged in trading iron and steel, made purchases from parties listed as hawala dealers by the Maharashtra Sales Tax Department. The AO added 12.5% of the bogus purchase amounting to ?14,815,693 as income, estimating the profit rate.
- CIT(A)'s Observations: The CIT(A) restricted the addition to 4% of the bogus purchases, amounting to ?5,92,630, considering the VAT rate on iron and steel items and the gross profit rate as per the books of the appellant.
- Tribunal's Decision: The Tribunal confirmed the CIT(A)'s decision to apply a profit rate of 4%, dismissing the assessee's appeal on this issue.

Conclusion:
The appeal of the assessee was partly allowed. The addition under section 68 for share premium was deleted, while the partial addition for bogus purchases was confirmed at a reduced rate of 4%. The issue of reopening under section 148 was dismissed as withdrawn. The order was pronounced in the open court on 12-10-2018.