2019 (6) TMI 147 - AT - Income Tax

Addition u/s 68 on account of bogus share capital and share premium - receipt of certain information from DIT(Investigation)-II, Mumbai that the assessee indulged in certain bogus transactions with hawala entities - HELD THAT - The assessee had filed plethora of documents as mentioned in para 3.2 to prove the identity of the investor, creditworthiness of the investor and genuineness of the transactions. All the four entities were corporate entities and filing their respective return of income under unique Permanent Account Number. The financial statements, Annual Reports as well as bank statements of the all the investors was made available to Ld. AO. Nothing on record suggest that any cash was exchanged / transacted between the assessee and the investor entities. The perusal of bank statements of all the four entities, as placed on record, reveal that there is no immediate cash deposit in the respective bank accounts which has later been transmitted to the assessee in the shape of Share Application Money. The investments were duly reflected in the financial statements of the investor companies. The factum of investment was confirmed by all the four entities. The three parties responded to notice u/s 133(6) and confirmed the transactions whereas new address was provided with respect to the fourth entity. However, no further inquiry has been made by AO so as to confirm the transactions. The Ld. DR has relied upon the judgement of Hon ble Apex Court rendered in PCIT Vs. NRA Iron Steel Pvt. Ltd. 2019 (3) TMI 323 - SUPREME COURT which we have carefully studied. However, the factual matrix, before us, in the present case is quite different. In the present case, we find that the assessee has duly discharged the initial onus of proving the identity of the investors, creditworthiness of the transactions and genuineness of the transactions. Notices issued u/s 133(6) have been responded to. In such a scenario, the onus to dislodge the assessee s claim, in our opinion, was shifted back to Ld. AO and he was duty bound to investigate the case further. However, the facts on record nowhere establishes that such further inquiries / investigations have subsequently been conducted by AO in the present case. Additions could not be made merely on the basis of doubts, conjectures or surmises See KALE KHAN MOHAMMAD HANIF 1963 (2) TMI 33 - SUPREME COURT , ROSHAN DI HATTI. 1977 (3) TMI 3 - SUPREME COURT AND ORISSA CORPORATION PVT. LIMITED 1986 (3) TMI 3 - SUPREME COURT - Decided against revenue.

Summary

Issues:
Appeal by revenue contesting deletion of addition of ?84 lacs u/s 68 of the Income-tax Act on account of bogus share capital and share premium; failure to produce any single party for examination by the AO; failure to appreciate that a party was issuing bogus accommodation entries.

Analysis:

Issue 1 - Addition of ?84 lacs u/s 68:
The assessee, a resident corporate assessee engaged in Share Market Activities, was assessed for AY 2009-10 under section 143(3) r.w.s. 147. The reassessment was triggered by information from DIT(Investigation)-II, Mumbai, alleging bogus transactions. The assessee received Share Application Money from four entities totaling ?84 lacs. The AO demanded documentary evidence to prove identity, creditworthiness, and genuineness of the transactions. Assessee provided various documents, but AO deemed the transactions as paper transactions by hawala operator entities, adding the amount to income under section 68. The CIT(A) relied on legal precedents and held in favor of the assessee, emphasizing that share premium was capital in nature and the assessee fulfilled the requirements of section 68.

Issue 2 - Non-production of parties for examination:
The AO contended that the assessee failed to produce any investor to confirm the transactions. The DR relied on a recent Supreme Court decision to support this argument. However, the AR argued that the assessee provided ample documentary evidence to establish the transactions' genuineness, shifting the onus back to the AO. The ITAT analyzed the facts and found that the assessee had indeed proven the identity, creditworthiness, and genuineness of the transactions. The ITAT dismissed the appeal, noting that the AO did not conduct further inquiries to disprove the assessee's claims.

Issue 3 - Bogus accommodation entries:
The AO also alleged that one party was issuing bogus accommodation entries. The CIT(A) found that the AO heavily relied on statements by a third party without proving that the documents submitted were fabricated. The CIT(A) concluded that the addition could not be sustained based on the evidence presented. The ITAT upheld the CIT(A)'s decision, emphasizing that additions cannot be made solely on doubts or conjectures.

In conclusion, the ITAT dismissed the revenue's appeal, affirming the CIT(A)'s decision in favor of the assessee. The judgment highlighted the importance of fulfilling the requirements of section 68 and conducting thorough investigations before making additions based on suspicions.