2020 (12) TMI 175 - AT - Income Tax

Addition u/s 68 - unsecured loans as well as share application money received from all the 6 entities was held to be non-genuine and a sham claim made by the assessee - assessee must prove the identity, creditworthiness of the lenders / investors to advance such monies and genuineness of the transactions - Whether AO has erred in not following the instruction of CBDT and has scrutinized and made addition on the issue which was not covered under the CASS while selecting the case under Scrutiny - HELD THAT - The perusal of bank statement would reveal that the funds have been transferred to the assessee through banking channel, there being no immediate cash deposit before transfer of funds to the assessee. Its financial statements are likewise audited and it has sufficient reserves of more than ₹ 579.50 Lacs to make further investments. Primary onus of establishing the identity of the investor entities, proving their respective creditworthiness and to establish the genuineness of the transactions was duly been discharged by the assessee. The assessee was not required to prove the source of source for this year. Therefore, the onus was on revenue to rebut these evidences by bringing on record cogent material to dislodge assessee s evidences Except for the fact that summons remained un-served, there is nothing in the armory of revenue to unsettle the assessee s claim. The allegations are not supported by any corroborative evidences. Once the initial onus was discharged by the assessee, it was incumbent upon revenue to carry out further investigation to support the allegation that the credits were unexplained - nothing of that sort has been shown to have been carried out. So far as the information of DGIT (Inv.) is concerned, we find that these were merely third party statements which were never confronted to the assessee and those statements on standalone basis could not form the basis of making additions in the hands of the assessee. AR, during the course of hearing, advanced arguments for the submissions that the case of the assessee was selected for scrutiny under CASS for the reason that there was large interest expenses relatable to exempt investments u/s 14A. No such additions were made by Ld. AO in the assessment order and therefore, the scope of scrutiny could not be enlarged to make additions of unexplained cash credit u/s 68. However, these arguments do not convince us much since upon perusal of page no. 17, it is quite evident that the type of scrutiny was complete and it was not a limited scrutiny case - AO was quite empowered to make correct assessment of assessee s income considering all the facts and issues. There is nothing on record which would show that there was any defect in the jurisdiction of Ld. AO, in any manner. - Decided partly in favour of assessee.

Issues Involved:
1. Applicability of Section 68 for Share Application Money and Unsecured Loans.
2. Burden of Proof for Identity, Creditworthiness, and Genuineness of Transactions.
3. Validity of Additions Based on Doubts, Conjectures, or Surmises.
4. Scope of Scrutiny under CASS and Jurisdiction of Assessing Officer.

Issue-Wise Detailed Analysis:

1. Applicability of Section 68 for Share Application Money and Unsecured Loans:
As per Section 68 of the Income Tax Act, 1961, any sum found credited in the assessee's books without satisfactory explanation about its nature and source can be charged as income. A proviso added by the Finance Act, 2012, effective from 01/04/2013, specifies that for companies, the explanation for share application money, share capital, share premium, etc., must be satisfactory, including the explanation from the person in whose name the credit is recorded. However, this proviso is not retrospective and is not applicable for unsecured loans or deposits. This position has been upheld by the Bombay High Court in multiple cases, including CIT Vs. Gagandeep Infrastructure Private Limited and Gaurav Triyugi Singh V/s ITO.

2. Burden of Proof for Identity, Creditworthiness, and Genuineness of Transactions:
To avoid the implications of Section 68, the assessee must prove the identity and creditworthiness of lenders/investors and the genuineness of transactions. Once these elements are established, the primary onus shifts to the revenue to disprove the assessee's claims with material evidence. The Supreme Court in Lovely Exports P. Ltd. stated that if share application money is received from alleged bogus shareholders, the Department can reopen their individual assessments but cannot add it to the assessee's income without proper evidence.

3. Validity of Additions Based on Doubts, Conjectures, or Surmises:
Additions under Section 68 cannot be based on mere doubts, conjectures, or surmises. Once the assessee discharges the primary onus of substantiating the transactions, the revenue must provide corroborative evidence to disprove the assessee's claims. Failure to confront the assessee with adverse material and provide an opportunity to rebut it would violate the principles of natural justice.

4. Scope of Scrutiny under CASS and Jurisdiction of Assessing Officer:
The case was selected for scrutiny under CASS for large interest expenses related to exempt investments under Section 14A. However, the scrutiny was complete and not limited, empowering the Assessing Officer (AO) to assess the income considering all facts and issues. The AO's jurisdiction was valid, and there was no defect in the jurisdiction.

Judgment Analysis:

1. Share Application Money and Unsecured Loans:
The assessee received share application money of ?6,00,000 and unsecured loans of ?2,44,00,000 from six corporate entities. The assessee provided account confirmations, bank statements, PAN cards, ITR acknowledgments, and financial statements of these entities. Despite the summons issued by the AO being unserved, the assessee's documents established the identity, creditworthiness, and genuineness of the transactions.

2. Revenue's Rebuttal:
The AO doubted the genuineness of transactions based on unserved summons and third-party statements, alleging the entities were involved in providing accommodation entries. However, these allegations were unsupported by corroborative evidence. The AO failed to carry out further investigations to substantiate the claims, rendering the additions unsustainable.

3. Judicial Precedents:
The tribunal referred to various judicial pronouncements, including those of the Supreme Court and High Courts, reiterating that additions cannot be made based on doubts or third-party statements without confronting the assessee. The primary onus was discharged by the assessee, and the revenue failed to rebut it effectively.

4. Scope of Scrutiny:
The tribunal rejected the assessee's argument that the AO's scrutiny scope was limited to Section 14A, as the scrutiny was complete, allowing the AO to assess all relevant issues.

Conclusion:
The tribunal deleted the additions made under Section 68, allowing the assessee's appeal partly. The order was pronounced on 03rd December 2020.

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