2019 (1) TMI 462 - AT - Income Tax

Additions u/s 68 being share application money received from four parties - Held that - The provisions of Section 68 provide that an assessee shall provide explanation in relation to the credit in its books of accounts. Once it has discharged its obligation to prove the said credit, it is not required to prove the source of funds of its source of share application money. An assessee is not required to provide details about its source s source. We notice that Ld CIT(A) therefore, concluded that the loan given to the farmers by IDBI for supply of material like cotton to BTCL was ghastly misused and were diverted back to BTCL in the form of share application money by using the conduit of banking channel in a circular rotation by using colourable devise. CIT(A) has accepted that the source of the funds invested by the farmers is the loan given by IDBI through BTCL. Therefore, such amount invested by the farmers cannot be said to be non-genuine transactions. Secondly, the IDBI had given loan to farmers against sale proceeds receivable by them from BTCL on sale of the crops. Therefore, the creditworthiness of the farmers is proved beyond doubt. We have also noticed from the details that the assessee had refunded the share application of the said three farmers in the month of March 2011 i.e. 2011-12. All other allegations of the Ld. CIT(A) are not relevant for deciding that the receipt of the share application money is genuine and the creditworthiness of the parties investing in share application is proved. The provisions of sec.68 places initial burden of proof upon the shoulders of the assessee, i.e., the assessee is required to prove three main ingredients viz., the identity of the creditor, the creditworthiness of creditor and genuineness of transactions. Once the assessee discharges the initial burden placed upon its shoulders, then the burden would shift upon the shoulders of the assessing officer, i.e., it is the AO who has to disprove the submissions made by the assessee. We notice that the assessee has discharged the initial burden of proof placed upon its shoulders by proving the identity of the share applicants, their sources and the genuineness of transactions. Referring to various documents furnished in the paper book. However, we notice that the AO could not disprove the same, meaning thereby, the AO has failed to discharge the burden placed upon his shoulders. CIT(A) was not justified in confirming the addition made by the AO u/s 68 - decided in favour of assessee.

Summary

Issues Involved:
1. Addition of ? 80,200,000 as income under Section 68 of the Income Tax Act, 1961.
2. Ignoring the Assessing Officer's (AO) remand report.
3. Use of agricultural loans for share application money.
4. Allegation of bogus loan documents.
5. Source of share application money from farmers.
6. Circular movement of funds.
7. Receipt of share application money exceeding authorized capital.
8. Ignoring various documents filed before AO.
9. Proving the source of share applicants.
10. Financial statements of Sumeet Promoters Ltd.
11. Allegation of colorable device.
12. Assumptions and presumptions in CIT(A)'s order.
13. Deletion of addition under Section 68.
14. Levy of interest under Section 234B.
15. Right to add, alter, or delete grounds of appeal.

Detailed Analysis:

1. Addition of ? 80,200,000 as Income under Section 68:
The primary issue was the addition of ? 80,200,000 as unexplained cash credit under Section 68. The assessee had received share application money from three farmers and Sumeet Promoters Pvt. Ltd. The AO treated this as un-explained cash credit, which was confirmed by CIT(A). The Tribunal found that the assessee had established the identity, genuineness, and creditworthiness of the share applicants through banking channels and supporting documents.

2. Ignoring AO's Remand Report:
The CIT(A) ignored the AO's remand report, which accepted the source of the share application money except for ? 22,00,000 directly received from the lendee of Sumit Promoters. The Tribunal noted that the AO had accepted the genuineness of the transactions and the creditworthiness of the parties in the remand report.

3. Use of Agricultural Loans for Share Application Money:
The CIT(A) held that loans given for agricultural purposes could not be used for share applications. The Tribunal found that the loans were given by IDBI Bank against the sale proceeds receivable from BTCL, proving the farmers' creditworthiness and the genuineness of the transactions.

4. Allegation of Bogus Loan Documents:
The CIT(A) alleged that the loan documents were bogus. The Tribunal found that the assessee provided sufficient documentation, including agreements and bank statements, to prove the legitimacy of the loans and their utilization for share application money.

5. Source of Share Application Money from Farmers:
The CIT(A) doubted the financial capacity of the farmers to invest such large amounts. The Tribunal found that the farmers had received loans from IDBI Bank through BTCL, which were used for share application money, thus proving their creditworthiness.

6. Circular Movement of Funds:
The CIT(A) observed a circular movement of funds between BTCL and the assessee company. The Tribunal held that this did not affect the genuineness of the transactions, as the funds were legitimately sourced and utilized.

7. Receipt of Share Application Money Exceeding Authorized Capital:
The CIT(A) noted that the share application money exceeded the authorized capital of the assessee company. The Tribunal found this irrelevant for the purpose of Section 68, as the assessee had not issued shares in the year under consideration.

8. Ignoring Various Documents Filed Before AO:
The CIT(A) ignored various documents filed before the AO, including net worth certificates and 7/12 extracts of agricultural land held by the farmers. The Tribunal found these documents sufficient to prove the genuineness and creditworthiness of the transactions.

9. Proving the Source of Share Applicants:
The CIT(A) held that the assessee failed to prove the source of the share applicants. The Tribunal found that the assessee had provided adequate documentation to prove the source of funds, including bank statements and ledger accounts.

10. Financial Statements of Sumeet Promoters Ltd.:
The CIT(A) doubted the financial strength of Sumeet Promoters Ltd. The Tribunal found that the audited accounts of Sumeet Promoters Ltd. showed sufficient reserves and investments to prove its creditworthiness.

11. Allegation of Colorable Device:
The CIT(A) applied the Supreme Court judgment in the case of McDowell & Co., alleging a colorable device. The Tribunal found that the transactions were genuine and supported by documentary evidence, thus rejecting the allegation.

12. Assumptions and Presumptions in CIT(A)'s Order:
The CIT(A)'s order was based on assumptions and presumptions without adequate evidence. The Tribunal found that the assessee had provided sufficient evidence to prove the genuineness and creditworthiness of the transactions.

13. Deletion of Addition under Section 68:
The Tribunal held that the CIT(A) was not justified in confirming the addition made by the AO under Section 68. The assessee had discharged its burden of proof, and the AO failed to disprove the submissions. The Tribunal directed the AO to delete the addition.

14. Levy of Interest under Section 234B:
The Tribunal did not specifically address the issue of interest under Section 234B, as the primary addition under Section 68 was deleted.

15. Right to Add, Alter, or Delete Grounds of Appeal:
The Tribunal allowed the appeal filed by the assessee, thus rendering the need to add, alter, or delete grounds of appeal moot.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, setting aside the order passed by CIT(A) and directing the AO to delete the addition made under Section 68. The Tribunal found that the assessee had provided sufficient evidence to prove the identity, genuineness, and creditworthiness of the share applicants, and the AO failed to disprove the same.