2019 (3) TMI 1194 - AT - Income Tax

Unexplained cash credit u/s 68 - share premium/share application money unexplained - HELD THAT - The assessee has proved all the three conditions/ingredients which are required to be fulfilled such as genuineness, creditworthiness and identity of the investors and therefore the addition as made under section 68 by the AO is not correct. We are fully in agreement with the conclusion drawn by the Ld. CIT(A) reversing the order of AO by holding that all the three ingredients were duly specified. Therefore, we do not find any reason to deviate from the finding as given by the Ld. CIT(A) accordingly we uphold the order of Ld. CIT(A) and dismiss the appeal of the Revenue. Addition u/s 69C - disallowance being 5% of unexplained cash credit as made by the AO under section 69C as unexplained expenditure is also ordered to be deleted as the same does not survive at all. - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of addition of ?2,00,00,000 on account of share premium/share application money/unexplained cash credit under Section 68 of the Income-tax Act, 1961.
2. Deletion of addition of ?10,00,000 being 5% of the unexplained cash credit value as unexplained expenditure under Section 69C of the Income-tax Act, 1961.

Issue-Wise Analysis:

1. Deletion of Addition of ?2,00,00,000 under Section 68:
The Revenue challenged the CIT(A)'s decision to delete the addition of ?2,00,00,000 made by the AO under Section 68 of the Income-tax Act, 1961. The AO had initiated reassessment proceedings based on information from the Investigation Wing, which indicated that the assessee had received bogus accommodation entries from M/s. Duke Business Pvt. Ltd. and M/s. Vanguard Jewels Ltd. The AO issued notices under Section 133(6) and found that these companies had no net worth and had incurred significant losses. Consequently, the AO added the share capital plus premium to the assessee's income under Section 68 and also added a commission of ?10 lakhs as unexplained expenditure under Section 69C.

The CIT(A) allowed the assessee's appeal, noting that the AO failed to provide specific evidence linking the appellant company to the alleged cash transactions. The CIT(A) observed that the investor companies were assessed to tax, had filed their returns, and responded to notices under Section 133(6). The CIT(A) found that the AO did not demonstrate any direct evidence of cash trail or accommodation entries and failed to provide the assessee an opportunity for cross-examination. The CIT(A) relied on various judicial precedents, including the Supreme Court's decision in CIT v. Lovely Exports, which held that if the share application money is received from alleged bogus shareholders, the department should proceed against the shareholders, not the assessee company.

The ITAT upheld the CIT(A)'s decision, agreeing that the assessee had discharged its burden of proof by providing identity, genuineness of the transaction, and creditworthiness of the investors. The ITAT noted that similar issues had been decided in favor of the assessee in other cases, including Shree Laxmi Estate Pvt. Ltd. vs. ITO, where the Tribunal held that the assessee had discharged the onus of proving identity, genuineness, and creditworthiness.

2. Deletion of Addition of ?10,00,000 under Section 69C:
The AO had added ?10,00,000 as unexplained expenditure under Section 69C, representing 5% of the unexplained cash credit value. The CIT(A) deleted this addition, reasoning that since the primary addition under Section 68 was deleted, the corollary addition under Section 69C also could not survive. The ITAT upheld this decision, agreeing that the deletion of the primary addition under Section 68 rendered the addition under Section 69C unsustainable.

Conclusion:
The ITAT dismissed the Revenue's appeals, upholding the CIT(A)'s order deleting the additions under Sections 68 and 69C. The ITAT affirmed that the assessee had adequately discharged its burden of proof regarding the identity, genuineness, and creditworthiness of the investors, and the AO had failed to provide specific evidence to the contrary. The ITAT's decision was consistent with judicial precedents, including those of the Supreme Court and various High Courts, which emphasized the need for the Revenue to provide concrete evidence when disputing the genuineness of share application money.