2021 (10) TMI 227 - AT - Income Tax

Unexplained cash credit u/s. 68 - Onus to prove - amount received during the year as share capital and premium - HELD THAT - Onus had shifted on Ld. AO to dislodge the assessee s documentary evidences and bring on record cogent material to establish that the assessee generated unaccounted money and routed the same through banking channels in the garb of share-application money. Unless such an investigation is shown to have been carried out, the additions would not be sustainable in law since it is trite law that no addition could be made on the basis of mere suspicion, conjectures and surmises. Nothing adverse could be borne out of the fact that most of the share-applicants had bank accounts in common bank / branch and the directors of corporate entities were running various other concerns. It could be seen that few of the investors belonged to common family and therefore, it would not be uncommon to operate the bank from same Bank and Branch. As per the provisions of Section 68 where any sum is found credited in the assessee s books and assessee offers no explanation about the nature and source thereof or the explanation furnished is found to be unsatisfactory, the sum so credited may be charged to Income-Tax as the income of the assessee of that previous year. A proviso has been inserted to the said section by Finance Act, 2012 w.e.f. 01/04/2013 to provide that where the assessee is a company and the sum so credited consists of share application money, share capital, share premium etc., the explanation furnished by the assessee shall be deemed to be not satisfactory unless the person in whose name such credit is recorded also offers an explanation about nature and source of sum so credited and such explanation is found to be satisfactory. By observing that the assessee in the present case, has been able to discharge the initial burden to establish the identity, creditworthiness and genuineness as regards the transactions concerning the allotment of shares. We find that in the case before us, the initial burden has similarly been discharged by the assessee - on the facts and circumstances, we hold that the impugned additions as made u/s 68 and consequential addition of estimated commission u/s 69C is not sustainable in law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Unexplained Cash Credit under Section 68 of the Income Tax Act.
2. Estimated Commission under Section 69C of the Income Tax Act.

Issue-wise Detailed Analysis:

Unexplained Cash Credit under Section 68:
The primary issue revolves around the addition of ?3,47,18,000/- as unexplained cash credit under Section 68. The assessee contested the addition, arguing they had discharged their onus by providing necessary evidence to substantiate the genuineness of the transaction, identity, and creditworthiness of the shareholders. The assessee submitted various documents, including Share Application Forms, PAN Cards, confirmations from share applicants, bank statements, Income Tax Returns, and financial statements. Despite these submissions, the Assessing Officer (AO) alleged that the share applicants lacked creditworthiness and that the transactions were accommodation entries.

During the appellate proceedings, the assessee reiterated their position and provided further evidence, including net-worth statements of the share applicants. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, noting that some share applicants did not respond to summons, and there were cash deposits in their bank accounts before issuing cheques to the assessee. The CIT(A) concluded that the transactions were not genuine and the share applicants lacked financial capacity.

Upon further appeal, the Tribunal observed that the assessee had provided substantial documentary evidence to prove the identity, creditworthiness, and genuineness of the transactions. The Tribunal noted that the assessee had no legal power to enforce the attendance of share applicants and that it was the first year of operation for the assessee company, making it unlikely that they generated unaccounted money. The Tribunal concluded that the assessee had discharged their initial onus under Section 68, and the AO failed to bring cogent material to disprove the assessee's evidence. Consequently, the Tribunal deleted the addition of ?3,47,18,000/- under Section 68.

Estimated Commission under Section 69C:
The AO also added ?1,00,000/- under Section 69C, presuming that the assessee must have paid a 2% commission for obtaining accommodation entries. The assessee argued that there was no incriminating evidence to support this presumption.

The CIT(A) upheld the AO's decision, but the Tribunal found that the addition was based on mere suspicion without any concrete evidence. Therefore, the Tribunal deleted the addition of ?1,00,000/- under Section 69C.

Assessment Years 2010-11 to 2012-13:
The facts and issues for Assessment Years 2010-11 to 2012-13 were identical to those of Assessment Year 2009-10. The Tribunal noted that the assessee had provided sufficient documentary evidence for these years as well. Consequently, the Tribunal deleted the additions made under Sections 68 and 69C for these years, following the same reasoning as for Assessment Year 2009-10.

Conclusion:
The Tribunal allowed all the appeals, deleting the additions made under Sections 68 and 69C, and directed the AO to re-compute the income accordingly. The order was pronounced on 1st October, 2021.