2022 (4) TMI 736 - AT - Income Tax

Unexplained cash credit under section 68 - As per AO mere transactions carried out through the banking channel does not imply ipso facto as genuine transaction - HELD THAT - With respect to the identity of the party, we find that the assessee has furnished the details such as copy of ledger account, bank statements, PAN. From the above, there remains no doubt that the identity of the investor parties is not in disputed, as it has been proved beyond doubt. With respect to the genuineness of transaction undisputed fact that the amount of share application money received by the assessee was refunded to the parties. It implies that the assessee was not the beneficiary of the amount received by it as alleged by the AO. Though the share application money has been repaid by the assessee in the subsequent year, but it is difficult to hold that the assessee was the ultimate beneficiary of the impugned amount. Thus, we can assume that the impugned transaction was the genuine transactions between the assessee and the parties. CIT (A) has given categorical finding that there was assessment framed in case of all three parties for the year under consideration where additions were made. This fact cannot be brushed aside merely on the ground that the investor were not produced by the assessee during the assessment proceedings. It was the revenue which wanted to verify the investors. For this purpose, lot of powers were available with the revenue such as issuing notice under Section 131 of the Act for inviting the personal attendance of the parties. But the AO has not exercised such power in the given facts and circumstances. Thus we are of the opinion that, though the transactions of the share application money received by the assessee received without proper share application form or written correspondence may raise doubt but in either of the case, once application money is returned back, which has been established based on the documentary evidence, the credit entries cannot be looked into in isolation after ignoring the debit entries despite the debit entries were carried out in the later years. Thus, in the given facts and circumstances, we hold that there is no infirmity in the order of the Ld. CIT-A. Hence, the ground of appeal of the revenue is hereby dismissed. Addition u/s 68 - loans and advances - HELD THAT - There remains no ambiguity that amount of ₹ 5 crore each received from Shri Ramesh Thakor and Shri Vinod Sharma represent repayment of advances given by the assessee in the month of February 2009. Therefore the provision of section 68 will not be applicable on this transaction. Hence the ground of appeal of the Revenue is hereby dismissed.

Summary

Issues Involved:

1. Deletion of addition of ?12.50 crores as unexplained cash credit under section 68 of the Income Tax Act.
2. Deletion of addition of ?10 crores as unexplained cash credit under section 68 of the Income Tax Act.
3. Validity of the notice issued under section 148 and assessment framed under section 143(3) r.w.s. 147 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?12.50 Crores as Unexplained Cash Credit:

The revenue challenged the deletion of ?12.50 crores, which was treated as unexplained cash credit under section 68 of the Act. The assessee had received share application money from three different parties, but the AO found discrepancies such as non-filing of income tax returns by these parties, incomplete addresses, lack of written documents, and the improbability of such large investments without proper documentation. The AO also noted that the share application money was advanced as loans without interest to a group company, indicating no genuine project.

The CIT(A) deleted the addition, noting that the assessee provided PAN, addresses, bank statements, and explained the source of funds, which were mainly from the sale of properties. The CIT(A) cited various judicial pronouncements, including the Supreme Court's decision in Commissioner of Income Tax Vs. Lovely Exports Pvt. Ltd., to support that the share application money should be assessed in the hands of the applicants, not the company. The CIT(A) also pointed out that the share application money was returned in the subsequent year, reinforcing the genuineness of the transactions.

Upon appeal, the Tribunal upheld the CIT(A)'s decision, agreeing that the identity, creditworthiness, and genuineness of the transactions were established. The Tribunal emphasized that the transactions were through banking channels, and the share application money was refunded, indicating no benefit to the assessee. The Tribunal also noted that the AO did not exercise available powers to verify the investors personally.

2. Deletion of Addition of ?10 Crores as Unexplained Cash Credit:

The AO treated ?10 crores received from two parties as unexplained cash credit, arguing that the assessee did not provide confirmation or agreement to show that these were loans given earlier. The CIT(A) deleted the addition, stating that the assessee had provided balance sheets, ledger accounts, and bank statements showing the loans given and received back. The CIT(A) noted that the identity, creditworthiness, and genuineness of the transactions were established, and the loans were repaid through banking channels.

The Tribunal upheld the CIT(A)'s decision, noting that the assessee had provided sufficient evidence to prove that the amounts received were repayments of earlier loans. The Tribunal reiterated that the identity, creditworthiness, and genuineness of the transactions were established, and the provisions of section 68 were not applicable.

3. Validity of Notice Issued Under Section 148 and Assessment Framed Under Section 143(3) r.w.s. 147:

The assessee challenged the validity of the notice issued under section 148 and the assessment framed under section 143(3) r.w.s. 147, arguing that the AO relied solely on information from the DDIT without any tangible material. However, since the revenue's appeal on merits was dismissed, the Tribunal did not find it necessary to adjudicate this technical issue and dismissed the grounds as infructuous.

Conclusion:

The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s deletion of additions under section 68 for both the share application money and the loan repayments. The Tribunal also dismissed the assessee's cross-objections as infructuous, given the dismissal of the revenue's appeal on merits. The judgment emphasized the importance of establishing identity, creditworthiness, and genuineness of transactions, and the necessity for the AO to exercise available powers to verify such transactions.