2019 (1) TMI 1089 - HC - Income Tax

Addition u/s 68 - unexplained money receipt in the form of share capital/share premium - addition was deleted by the CIT (Appeals) on the ground that the assessee had been able to establish identity, creditworthiness of the shareholders and genuineness of the transactions - Held that - We have no hesitation in holding that the transactions in question were clearly sham and make-believe with excellent paper work to camouflage their bogus nature. Accordingly, the order passed by the Tribunal is clearly superficial and adopts a perfunctory approach and ignores evidence and material referred to in the assessment order. The reasoning given is contrary to human probabilities, for in the normal course of conduct, no one will make investment of such huge amounts without being concerned about the return and safety of such investment. - Decided in favour of revenue

Issues Involved:
1. Whether the ITAT erred in upholding the deletion directed by the CIT (A) regarding the amount of ?1,51,50,000/- taxed under Section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Background and Details of the Case:
The appeal concerns the Assessment Year 2008-09 and arises from the order dated 3rd March 2019 passed by the Income Tax Appellate Tribunal (ITAT). The respondent-assessee received money in the form of share capital/share premium from five companies totaling ?1,51,50,000/-. The Assessing Officer (AO) added this amount as unexplained cash under Section 68 of the Income Tax Act, 1961, citing that the companies were operated by Tarun Goyal, who provided accommodation entries to convert illegitimate money into legitimate money.

2. Assessing Officer's Findings:
The AO found that the companies were mere creations of Tarun Goyal, who controlled approximately 90 companies for providing accommodation entries. The AO noted that the companies did not conduct genuine business activities, and their directors were employees of Tarun Goyal. The modus operandi involved circulating money through group companies before issuing cheques to beneficiaries.

3. Respondent-Assessee's Non-Compliance:
The AO asked the respondent-assessee to produce the directors of the shareholder companies for examination and provide various documents related to the issuance of shares. The respondent-assessee failed to produce the directors and other required details but submitted some documents like ledger accounts, bank statements, balance sheets, and affidavits of directors.

4. CIT (A)'s Deletion of Addition:
The Commissioner of Income Tax (Appeals) deleted the addition, holding that the respondent-assessee had established the identity, creditworthiness of the shareholders, and genuineness of the transactions. The CIT (A) relied on the fact that the companies were incorporated, had PAN details, and had invested money through banking channels.

5. ITAT's Dismissal of Revenue's Appeal:
The ITAT dismissed the Revenue's appeal, noting that the respondent-assessee had provided sufficient documents to establish the identity of the share applicants, and the transactions were routed through banking channels. The ITAT observed that the AO failed to disprove the evidence provided by the assessee and did not bring any evidence to show that the share application money emanated from the assessee's coffers.

6. High Court's Analysis and Judgment:
The High Court noted that the AO had made inquiries and found substantial evidence indicating that the transactions were bogus. The court highlighted several points ignored by the ITAT:
- All shareholder companies were located at a common address.
- The companies were operated by Tarun Goyal, who controlled their activities.
- The respondent-assessee did not have significant business income or fixed assets.
- Shares were issued at a substantial premium without justification.
- The respondent-assessee failed to produce the directors for examination.

The High Court held that the transactions were sham and make-believe, with excellent paper work to camouflage their bogus nature. The court found the ITAT's order superficial and contrary to human probabilities, as no prudent businessman would invest such substantial amounts without concern for returns and safety.

7. Conclusion:
The High Court allowed the appeal, answering the substantial question of law in favor of the appellant-revenue and against the respondent-assessee. The court concluded that the transactions in question were clearly sham and make-believe, and the ITAT's order was superficial and ignored significant evidence.

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