2022 (1) TMI 824 - AT - Income Tax

Assessment u/s 153A - Addition u/s 68 - Bogus share application money - CIT(A) deleted the addition - HELD THAT - All the investor companies are group companies who were allotted shares by the assessee company during the relevant period under consideration. It is also an admitted fact that the assessee has filed the details of source of source i.e., the source of funds received by the investors. It is also an admitted fact that the assessee filed copies of bank statements and ledger accounts of the group companies which made the funds available to the investor companies which, in turn, invested such funds in the assessee company in the shape of share application money and share premium. So far as the allegation of the AO that certain funds were received in the form of accommodation entries in a layered structure and that the assessee has received undisclosed funds in the share capital in the shell companies of the group which in turn remitted the same to the operating companies are concerned and that the assessee failed to substantiate the source of funds received by its investors and that the assessee did not produce the directors or other office bearers of the investor companies are concerned, we find the ld.CIT(A) has discussed all these issues thoroughly. We find, the assessee, in the instant case, has discharged the initial burden cast on it by filing the requisite details before the AO, summons u/s 131 were replied, there was compliance to the notice u/s 133(6), the investor companies have shown huge reserves and surplus and own capital. Merely because these companies have taxable income which is less than the amount invested during the year in our opinion cannot be a ground for making the addition especially when all the investor companies have got huge net worth in shape of own capital and free reserves and are group companies and all transactions are through proper banking channel. As further find from the various details furnished by the assessee in the paper book that Shri Narendra Kumar and Shri Deepak Kumar are Directors of M/s. Veneet Capital Services Pvt. Ltd., and Shri Kishore Kargeti and Shri Pawan Kumar Bagri are the Directors of M/s. Lakhotia Impex (P) Ltd. It is seen from the assessment order that no enquiries have been conducted by issue of notice u/s. 131 or u/s.133(6) of the I.T. Act, 1961 in respect of the above Directors - these are all group companies and no incriminating material was found as a result of search to support the allegation that money invested by the investors is unaccounted money of the assessee. In the instant case, it is an admitted fact that the investors are group companies and no incriminating material was found as a result of search to support the allegation that money invested by the investor is unaccounted money of the assessee. The Hon ble Delhi High Court in the case of CIT vs. Nipuan Auto (P) Ltd.. 2013 (5) TMI 476 - DELHI HIGH COURT has held that the addition is not tenable where investment has been made by group Companies. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of Assessment Proceedings under Section 153A.
2. Addition under Section 68 of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Assessment Proceedings under Section 153A:
The assessee challenged the validity of the assessment proceedings under Section 153A, arguing that no incriminating material was found during the search. The CIT(A) upheld the initiation of proceedings under Section 153A, stating that the search operations did yield prima facie incriminating material, such as share certificates and related documents, which raised doubts about the genuineness of the transactions. The CIT(A) referenced the Delhi High Court judgments in "CIT (C)-III vs. Kabul Chawla" and "Dayawanti Gupta vs. CIT," which support the initiation of proceedings under Section 153A in such situations. The Tribunal agreed with the CIT(A), noting that the AO was within his rights to invoke Section 153A based on the information that surfaced during the search.

2. Addition under Section 68 of the Income Tax Act, 1961:
The AO made an addition of ?10.33 crores under Section 68, arguing that the assessee failed to establish the identity, creditworthiness, and genuineness of the share applicants. The assessee provided substantial evidence, including bank statements, share application forms, PAN cards, and financials of the investor companies. The CIT(A) deleted the addition, observing that the assessee had discharged its initial burden by providing all necessary documents. The CIT(A) also noted that the AO did not conduct further inquiries or summon the directors of the investor companies, and merely relied on the appraisal report from the Investigation Wing.

The Tribunal upheld the CIT(A)'s decision, emphasizing that:
- The investor companies had substantial net worth and reserves.
- The transactions were conducted through proper banking channels.
- The AO received replies to summons under Section 131 and notices under Section 133(6), confirming the identity and financial capacity of the investors.
- The Tribunal referenced several judgments, including "CIT vs. Goodview Trading Pvt. Ltd." and "CIT vs. Vrindavan Farms (P) Ltd.," which support the deletion of additions under similar circumstances.

The Tribunal also addressed the issue of the statement recorded under Section 132(4) during the search. The assessee retracted the statement, and the Tribunal noted that such statements, without corroborative evidence, cannot be the sole basis for making additions. The Tribunal referenced the Delhi High Court judgments in "CIT vs. Best Infrastructure (India) (P) Ltd." and "CIT vs. Harjeev Aggarwal," which held that statements under Section 132(4) do not constitute incriminating material by themselves.

Conclusion:
The Tribunal dismissed the appeal filed by the Revenue and the cross-objection filed by the assessee, upholding the CIT(A)'s decision to delete the addition under Section 68 and validating the initiation of proceedings under Section 153A.