2021 (12) TMI 701 - AT - Income Tax

Unexplained cash credit u/s. 68 - assessee failed to establish any cash credits in the books of accounts - assessee received amount from accommodation entries and converted them from unaccounted money to accounted money - HELD THAT - In the instant case, the credit is in the form of receipt of share capital from share applicants. The nature of receipt towards share capital is seen from the entries passed in the respective balance sheets of the companies as share capital and investments. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e. identity of share applicants, genuineness of transactions and creditworthiness of share applicants. For proving the identity of share applicants, the assessee furnished the name, address, PAN of share applicants together with the copies of balance sheets and Income Tax Returns. With regard to the creditworthiness of share applicants, we noted that these Companies are having capital and reserves and the investment made in the assessee company is only a small part of their capital. These transactions are also duly reflected in the balance sheets of the share applicants, so creditworthiness is proved. Even if there was any doubt if any regarding the creditworthiness of the share applicants was still subsisting, then AO should have made enquiries from the AO of the share subscribers. In the facts and circumstances of the case as discussed above, no addition is warranted under Section 68 - Decided in favour of assessee.

Summary

Issues:
1. Addition of unexplained cash credit under section 68 of the Income Tax Act.
2. Rejection of assessee's submissions regarding share application money.
3. Confirmation of action by the Assessing Officer by the Commissioner of Income Tax (Appeals).
4. Appeal before the Appellate Tribunal ITAT Surat.

Issue 1: Addition of unexplained cash credit under section 68 of the Income Tax Act:
The assessing officer added ?19,00,000 under section 68 of the Act due to alleged unexplained cash credit from accommodation entries received by the assessee during FY 2008-09. The AO found that the assessee failed to establish the cash credits in the books of accounts. However, the assessee argued that share application money cannot be treated as undisclosed income of the company as per various court judgments. The assessing officer converted unaccounted money to accounted money, resulting in the addition.

Issue 2: Rejection of assessee's submissions regarding share application money:
The assessee submitted various documents and evidence to prove the three ingredients of section 68 of the Act, including confirmation from companies, bank statements, PAN cards, audit reports, and other details. The assessee relied on the decision of the Hon'ble Supreme Court in the case of Lovely Exports to argue that if share application money is received from alleged bogus shareholders, the Department can proceed to reopen individual assessments of such shareholders. The assessee contended that the assessing officer should delete the addition as the necessary ingredients were proven.

Issue 3: Confirmation of action by the Commissioner of Income Tax (Appeals):
The Commissioner of Income Tax (Appeals) confirmed the action of the Assessing Officer, leading to the assessee's further appeal before the Appellate Tribunal ITAT Surat. The Tribunal carefully considered the submissions, documents, case laws, and findings of the CIT(A) before making a decision.

Issue 4: Appeal before the Appellate Tribunal ITAT Surat:
During the appeal before the Tribunal, the assessee presented detailed documents and evidence for each share subscribing company to establish the identity, creditworthiness, and genuineness required under section 68. The Tribunal noted that the share capital receipts were duly reflected in the balance sheets of the companies, proving creditworthiness. The Tribunal also highlighted the importance of allowing the assessee to respond to reports and statements relied upon by the assessing officer. Ultimately, the Tribunal deleted the addition of ?19,00,000, stating that no addition was warranted under section 68 of the Act.

This detailed analysis of the judgment highlights the key issues, arguments presented by the parties, legal interpretations, and the final decision rendered by the Appellate Tribunal ITAT Surat.