2019 (10) TMI 125 - AT - Income Tax

Unexplained cash credit u/s 68 - CIT(A) has relied on statements of few persons, claimed to be directors of the share applicant companies, recorded during the course of search proceedings by the Investigation Wing of the Income Tax Department on parties other than the assessee who stated that the share application money invested by their companies into the assessee company was in the nature of the accommodation entry - HELD THAT - No other incriminating documentary evidence related to the assessee found during the course of the searches, has been referred either by the Assessing Officer or by the Ld. CIT(A). Thus, no corroborating material was found in the course of the searches to support statements of persons of the share applicant companies. It is also not in dispute that the assessee sought cross-examination of those persons and the lower authorities have failed to provide any such opportunity to the assessee. Further, we also find that directors of very same share applicant companies filed confirmations of having invested share application money and also appeared before the AO in remand proceedings (part of first appellate proceedings) along with all documentary evidences which includes, confirmation of share application money invested; bank statement of their company; balance sheet of their company; copy of Board Resolution of their company etc. The directors of the share applicant companies have not confirmed providing of any accommodation entry to the assessee. Thus, the oral statement given by the persons before the Investigation Wing, which have been relied upon by the learned CIT(A), is of no relevance, when directors of the share applicant companies have confirmed the investment in assessee company. The lower authorities have also failed to corroborate the statement of those persons that cash was deposited in their bank accounts and, thereafter, cheques have been issued to the assessee. The Assessing Officer has failed to substantiate this claim of cash deposit in the bank account of those persons or share applicant companies. CIT(A) is not justified in relying the statements of those persons given before the Investigation Wing, and that too without any cross-examination and corroborating material on record. CIT(A) has relied on statement of Sh. Amit Gupta, recorded during the course of survey proceedings under section 133A of the Act at the premises of the assessee. Sh. Amit Gupta stated that the company obtained share application money through accommodation entry but, later on, he retracted from his statement. No material corroborating the statement was found in survey proceeding from the premises of the assessee. Further, the assessee has submitted that Sh. Amit Gupta was not director in the assessee company at the time of receipt of share application money and, therefore, his statement is irrelevant. The Revenue before us could not establish, that Sh. Amit Gupta was director at the time of receipt of the share application money. In the case of S. Khader Khan Son 2013 (6) TMI 305 - SC ORDER has held that statement under section 133A of the Act cannot be admitted as evidence unless corroborated by other documentary evidences. The assessee has succeeded in substantiating its claim as directed by the Tribunal in first round of proceedings. It is also evident that the Assessing Officer or the Ld. CIT(A) could not establish that the money deposited in the bank accounts of the share applicant money was in any manner rooted from the coffers of the assessee company. Case of LAKSHMI FLOAT GLASS LTD. 2016 (8) TMI 1463 - DELHI HIGH COURT followed - Decided in favour of assessee.

Issues Involved:
1. Addition of ?4,80,00,000 as unexplained cash credit under Section 68 of the Income Tax Act.
2. Addition of ?4,80,000 on account of alleged commission paid for obtaining accommodation entry under Section 69C of the Income Tax Act.
3. Levy of interest of ?1,19,76,685 under Section 234B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of ?4,80,00,000 as Unexplained Cash Credit under Section 68:

The appellant challenged the addition of ?4,80,00,000, representing sums received from various shareholders as share application money, which the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held as unexplained cash credit under Section 68 of the Income Tax Act. The appellant argued that the shareholders were corporate entities, duly assessed to tax, and had made investments through account payee cheques, supported by necessary evidence. The appellant provided documents such as certificates of incorporation, PAN cards, bank statements, balance sheets, and confirmations from the shareholders to establish their identity, creditworthiness, and the genuineness of the transactions.

The AO issued summons to the directors of the share applicant companies, and while some directors appeared and confirmed the investments, the AO still held the transactions as unexplained due to the inability to produce all directors and discrepancies in the financials of the share applicants. The CIT(A) upheld the addition, citing inconsistencies in the financials and statements of the directors and relying on statements recorded during search and survey proceedings, which suggested that the share application money was accommodation entries.

The Tribunal found that the assessee had provided sufficient documentary evidence to establish the identity and creditworthiness of the shareholders and the genuineness of the transactions. The Tribunal noted that the AO and CIT(A) failed to provide cross-examination opportunities and relied on retracted statements without corroborating evidence. The Tribunal also referred to similar cases, including a sister concern where the addition was deleted by the Tribunal and upheld by the High Court. Consequently, the Tribunal deleted the addition of ?4,80,00,000 under Section 68.

2. Addition of ?4,80,000 on Account of Alleged Commission Paid under Section 69C:

The CIT(A) upheld an addition of ?4,80,000, representing alleged commission paid to the entry provider in cash for obtaining accommodation entries, as unexplained expenditure under Section 69C of the Income Tax Act. The appellant contended that there was no evidence to support the claim of commission payment.

The Tribunal, considering the deletion of the primary addition of ?4,80,00,000 under Section 68, found no basis for the addition of ?4,80,000 as commission under Section 69C. As the primary addition was deleted, the consequential addition of commission was also deleted.

3. Levy of Interest under Section 234B:

The appellant challenged the levy of interest of ?1,19,76,685 under Section 234B of the Income Tax Act, which is consequential to the primary additions. Since the Tribunal deleted the primary addition of ?4,80,00,000 under Section 68 and the related commission addition under Section 69C, the levy of interest under Section 234B was also rendered unsustainable.

Conclusion:

The Tribunal allowed the appeal of the assessee, deleting the additions made under Sections 68 and 69C of the Income Tax Act and the consequential levy of interest under Section 234B. The Tribunal emphasized the importance of providing cross-examination opportunities and corroborating evidence when relying on statements recorded during search and survey proceedings. The decision was pronounced in the open court on 25th September 2019.

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