2022 (1) TMI 1024 - AT - Income Tax

Addition u/s 68 - genuineness, creditworthiness and identity of investors not proved - HELD THAT - The appellant company has sufficiently and reasonably discharged its primary onus under Section 68 of the Act by producing all relevant required documents as asked for by the Revenue. It also appears that the Ld. AO completely relied upon the loose papers and documents found and seized from the premises of third party i.e. SCS which even do not contain any noting of receiving or paying cash which could at all lead to the allegation of accommodation entries by the Ld. AO. Finally considering factors inter alia the status of all three companies in question as active as per the Ministry of Corporate Affairs ought not to have been treated as paper/sale companies. All the above facts and flaws have been carefully considered by the Ld. First Appellate Authority in its proper perspective. No ambiguity in the order passed by the First Appellate Authority in deleting the addition made by the Ld. AO so as to warrant interference. Hence, the appeal preferred by Revenue dismissed.

Summary

Issues Involved:
1. Addition of Share Capital and Share Premium under Section 68 of the Income Tax Act.
2. Identity, creditworthiness, and genuineness of the investor companies.
3. Refusal of cross-examination of key witnesses.
4. Reliance on statements and documents seized from third parties.
5. Application of judicial precedents.

Detailed Analysis:

1. Addition of Share Capital and Share Premium under Section 68 of the Income Tax Act:
The Revenue appealed against the deletion of additions made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, which pertains to unexplained cash credits. The AO had added ?1,89,10,000 to the total income of the assessee on the grounds that the share capital and premium received from three companies were unexplained and treated as accommodation entries.

2. Identity, Creditworthiness, and Genuineness of the Investor Companies:
The assessee provided comprehensive documentation, including PAN cards, bank statements, confirmations, and audited accounts of the investor companies. The AO did not disprove these documents or conduct further inquiries. The Tribunal found that the investor companies were listed and active, thus not shell companies. The initial burden under Section 68 was met by the assessee, proving the identity, creditworthiness, and genuineness of the transactions.

3. Refusal of Cross-examination of Key Witnesses:
The AO relied on statements from Shri Chandrakant Shah and others without providing the assessee an opportunity for cross-examination, violating principles of natural justice. The Tribunal referenced the Supreme Court's judgment in Andaman Timber Industries vs. CCE, which held that not allowing cross-examination of persons whose statements are relied upon is a serious flaw, rendering the order a nullity.

4. Reliance on Statements and Documents Seized from Third Parties:
The AO's case was based on documents and statements obtained during a search on a third party, Shri Chandrakant Shah, which indicated that the investor companies were providing accommodation entries. However, the Tribunal noted that these documents did not show any direct evidence of cash transactions involving the assessee. The Tribunal found that the AO's reliance on these documents without further investigation or corroboration was unjustified.

5. Application of Judicial Precedents:
The Tribunal cited the Madhya Pradesh High Court's decision in PCIT vs. Chain House International (P.) Ltd., which held that once the genuineness, creditworthiness, and identity of investors are established, no addition could be made under Section 68. The Tribunal also referenced similar decisions from various ITAT benches, reinforcing that the AO's additions were not sustainable.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO, finding that the assessee had sufficiently discharged its burden under Section 68 by providing necessary documentation and proving the genuineness of the transactions. The Tribunal dismissed the Revenue's appeals, noting that the AO's reliance on third-party statements and documents without allowing cross-examination and without further inquiry was flawed and violated principles of natural justice.