2021 (6) TMI 936 - AT - Income Tax

Addition u/s 68 - Bogus share capital and share premium amount received - Addition on no proof to the identity, creditworthiness and genuineness of share capital/ share premium - main plank on which the AO made the addition was because the directors of the share subscribers did not turn up before him - HELD THAT - Hon'ble Apex Court in the case of Orissa Corpn. (P) Ltd. 1986 (3) TMI 3 - SUPREME COURT and Rohini Builders 2001 (3) TMI 9 - GUJARAT HIGH COURT has held that onus of the assessee (in whose books of account credit appears) stands fully discharged if the identity of the creditor is established and actual receipt of money from such creditor is proved. In case, the Assessing Officer is dissatisfied about the source of cash deposited in the bank accounts of the creditors, the proper course would be to assess such credit in the hands of the creditor (after making due enquiries from such creditor). When a question as to the creditworthiness of a creditor is to be adjudicated and if the creditor is an Income Tax assessee, it is now well settled by the decision of the Calcutta High Court in M/S. DATAWARE PRIVATE LIMITED 2011 (9) TMI 175 - CALCUTTA HIGH COURT that the creditworthiness of the creditor cannot be disputed by the AO of the assessee but the AO of the creditor. Section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature and source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO's record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises, cannot be justified - no addition was warranted under Section 68 of the Act. Therefore, we delete the addition made - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of ?80,00,000/- being share capital and share premium received from Supriya Fincom Pvt. Ltd.
2. Addition of ?24,000/- being accommodation entry commission on the above amount.

Issue-wise Detailed Analysis:

1. Addition of ?80,00,000/-:
The Assessing Officer (AO) found that the assessee received ?1,38,60,000/- towards share premium and ?1,40,000/- towards share capital from two companies, totaling ?1,40,00,000/-. To verify the transactions, the AO issued notice u/s 133(6) to M/s Supriya Fincom Pvt. Ltd., but only partial compliance was made. The AO personally visited the given address and found no such company operating there. Further inquiries revealed that the company was managed by a known entry operator, Jivendra Mishra, who admitted to providing accommodation entries. The AO concluded that the investment was cash credit and made an addition u/s 68 of the Act.

On appeal, the CIT(A) deleted the addition of ?60,00,000/- related to M/s Empower India Ltd., as the AO did not make sufficient inquiries to establish the identity, creditworthiness, and genuineness of the transaction. However, the CIT(A) confirmed the addition of ?80,00,000/- related to M/s Supriya Fincom Pvt. Ltd.

The assessee argued that all transactions were supported by relevant documents, including share application forms, bank statements, and financial statements, proving the identity, creditworthiness, and genuineness of the transactions. The AO's main contention was the non-appearance of the directors of the share subscribers. However, the Tribunal noted that the assessee had provided sufficient documents to discharge its onus. The Tribunal cited several case laws, including the Supreme Court's decision in Lovely Exports, emphasizing that the AO should assess the credit in the hands of the creditor if dissatisfied with the source of funds.

The Tribunal concluded that the assessee had fulfilled the requirements of section 68 by providing necessary documents and explanations. Therefore, the addition of ?80,00,000/- made by the AO was deleted.

2. Addition of ?24,000/-:
The AO observed that the assessee made a commission payment of ?42,000/- at the rate of 0.30 paise per hundred rupees to the entry providers, which was not recorded in the books. The CIT(A) upheld the addition of ?24,000/- related to the commission payment on the share capital/premium of ?80,00,000/- from M/s Supriya Fincom Pvt. Ltd.

Since the Tribunal deleted the addition of ?80,00,000/-, the addition of ?24,000/- being accommodation entry commission was also deleted as it was consequential in nature.

Conclusion:
The appeal filed by the assessee was allowed, and the additions of ?80,00,000/- and ?24,000/- made by the AO were deleted. The Tribunal emphasized that the assessee had discharged its onus by providing sufficient documents to prove the identity, creditworthiness, and genuineness of the transactions, and the AO failed to disprove the materials placed before him.