2021 (6) TMI 325 - AT - Income Tax

Addition in respect of the Share Capital and Share Premium as unexplained cash credit u/s. 68 - amount received on the share application from five investors for allotment of shares during the financial year - HELD THAT - We find that no statement has been recorded in respect of these companies in the assessement proceedings. A.O without going into the detail aspects has made addition and further we found that that the A.O has dealt elaborately on the statement of Shri Rajesh Agarwal who was connected to these shareholder companies and further Shri Rajesh Agarwal has retracted his statement and it was also brought to the knowledge of the A.O. A.O has made addition based on surmises and conjunctions without proper verification and enquiry. We find that 4 investor companies financial statements were dealt and the findings are that the investors companies have a positive net worth and only a small percentage of investments were deployed which cannot be disputed. These five investors companies invested in the share capital at share premium in the assessee company referred at Sr. No. 1,2,4,5 and 8 of the chart where the Honble Tribunal has considered the financial aspects and observed that these companies can make investments and the investments percentage range from .47% to 5.45%. All the five investor companies contributed the share capital and premium were subject matter of adjudication by the Hon ble Tribunal and was treated as genuine in the above cases. We find that these five investor companies are part of the decisions of the Hon ble Tribunal for the same assessment year. We Considering the overall facts, circumstances, submissions and Hon ble Tribunal decisions, are of the substantive opinion that the assessee could able to substantiate its case and satisfy three ingredients being identity, creditworthiness and genuineness of the transactions. The Hon ble Tribunal has dealt elaborately on the net worth of these companies and percentage of the investments are comparatively lower than total net worth of the investor companies. Accordingly, we respectfully follow the judicial precedence and set aside the order of the CIT(A) and direct the assessing officer to delete the addition and allow this ground of appeal in favour of the assessee.

Issues Involved:
1. Validity of reopening the case under section 148.
2. Confirmation of the assessment order under section 143(3).
3. Opportunity to rebut material relied upon during reassessment.
4. Addition of Share Capital and Share Premium as unexplained cash credit under section 68.
5. Non-permission of business loss.
6. Initiation of penalty proceedings under section 274 read with section 271(1)(c).
7. Fresh calculations of interest under sections 234A, 234B, and 234C.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Case under Section 148:
The appeal contested the reopening of the case under section 148, deeming it "bad in law." The Commissioner of Income Tax (Appeals) [CIT(A)] found the reassessment valid, dismissing the grounds challenging its validity. The Tribunal upheld this, noting the Assessing Officer (A.O) had sufficient reasons to believe income had escaped assessment based on tangible information from the investigation wing.

2. Confirmation of the Assessment Order under Section 143(3):
The assessee argued the assessment order was against the principles of natural justice. The Tribunal noted the A.O issued notices under sections 143(2) and 142(1), and the assessee appeared and furnished details. The A.O concluded the assessee failed to prove the identity, creditworthiness, and genuineness of the transactions, leading to the addition under section 68. The Tribunal found the A.O's conclusion was based on the statement of an associate and lack of response to notices under section 133(6).

3. Opportunity to Rebut Material Relied Upon During Reassessment:
The assessee claimed they were not given a chance to rebut the material used in reassessment. The Tribunal observed the A.O relied on statements and lack of response to notices, concluding the assessee failed to establish the necessary elements for the transactions. The Tribunal noted the A.O did not properly verify and inquire into the details provided by the assessee.

4. Addition of Share Capital and Share Premium as Unexplained Cash Credit under Section 68:
The primary issue was the addition of ?92,00,000 as unexplained cash credit. The A.O found the investors related to the group concern and associated with accommodation entries. The CIT(A) upheld this, but the Tribunal found the A.O's addition based on surmises and conjectures without proper verification. The Tribunal referenced previous decisions in similar cases, noting the financial stability of the investor companies and their positive net worth. The Tribunal concluded the assessee could substantiate the identity, creditworthiness, and genuineness of the transactions, directing the deletion of the addition.

5. Non-permission of Business Loss:
The assessee contested the non-permission of business loss of ?2,53,121. The Tribunal did not address this issue in detail, focusing on the primary issue of the addition under section 68.

6. Initiation of Penalty Proceedings under Section 274 read with Section 271(1)(c):
The Tribunal found the penalty proceedings were prematurely raised and dismissed this ground of appeal.

7. Fresh Calculations of Interest under Sections 234A, 234B, and 234C:
The Tribunal noted the issue of interest calculations was consequential and required no specific adjudication.

Conclusion:
The Tribunal partly allowed the appeal, directing the deletion of the addition under section 68 and dismissing other grounds not pressed by the assessee. The Tribunal emphasized the need for proper verification and inquiry by the A.O and relied on judicial precedents confirming the genuineness of the transactions.

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