2022 (9) TMI 517 - AT - Income Tax

Addition u/s 68 - receipt of share application money - reliance on statement of third parties - retracted statements - HELD THAT - Parties were cross examined by the assessee during the course of assessment proceedings in the presence of the ld. AO, all these parties confirmed the contents stated in their retraction affidavits. Subsequently all these parties were again re-examined by the ld. AO before the completion of assessment. Even in that re-examination proceedings, all the parties reiterated the contents stated in the retraction affidavits. Hence we categorically hold that no addition could be made in the hands of the assessee company by placing reliance on the statements recorded from aforesaid parties, which stood subsequently retracted. With regard to statement of Shirish Shah relied upon by the ld. AO, it is a fact on record that the said statement was never furnished to the assessee for its rebuttal. Hence it has resulted in gross violation of principles of natural justice as it strikes the very foundation of the assessment. The statements of third parties i.e. two angadias relied upon by the ld. AO are totally unrelated to the assessee company and there is absolutely no linkage of the said parties with the assessee company. Hence we hold that no addition could be made in the hands of the assessee by placing reliance on the statements of third parties. As decided in M/S HEMADARI MACHINE TOOLS PVT. LTD. 2021 (8) TMI 851 - ITAT MUMBAI under similar circustances share premium received by the assessee during the year under consideration could not be held as an unexplained cash credit within the meaning of Sec. 68 - Decided in favour of assessee.

Issues Involved:
1. Justification of the deletion of addition made under Section 68 of the Income Tax Act concerning the receipt of share application money.
2. Applicability of Section 153C of the Income Tax Act.
3. Evidentiary value of statements recorded during survey proceedings.
4. Validity of retracted statements and their impact on the assessment.
5. Examination of the identity, creditworthiness, and genuineness of shareholder companies.
6. Impact of the amendment to Section 68 by Finance Act, 2012 on the assessment year under consideration.

Issue-wise Detailed Analysis:

1. Justification of the Deletion of Addition Made Under Section 68:
The primary issue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the addition made under Section 68 of the Income Tax Act concerning the receipt of share application money. The assessee received Rs 2.50 crores as share capital along with share premium from 15 shareholder companies. The Assessing Officer (AO) alleged that the funds were siphoned from Podar Group's charitable trusts and reintroduced into the assessee company through dubious transactions. However, the CIT(A) relied on substantial documentary evidence provided by the assessee, proving the identity, creditworthiness, and genuineness of the shareholder companies. The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to provide corroborative material to substantiate his claims, and the retracted statements of key individuals could not be relied upon.

2. Applicability of Section 153C:
The assessee argued that no incriminating material was found during the search that could attract the provisions of Section 153C of the Income Tax Act. The AO relied on seized documents and a file retrieved from a laptop, which the assessee claimed were not provided for verification. The Tribunal noted that no money, bullion, jewelry, or other valuable articles were seized, and the documents did not pertain to the assessee. Consequently, the provisions of Section 153C were deemed inapplicable.

3. Evidentiary Value of Statements Recorded During Survey Proceedings:
The AO heavily relied on statements recorded during survey proceedings under Section 133A of the Act. However, the Tribunal emphasized that statements recorded during survey proceedings do not have evidentiary value, as established by the Hon'ble Supreme Court in CIT vs. S. Khader Khan Son. The Tribunal also noted that these statements were subsequently retracted, further diminishing their reliability.

4. Validity of Retracted Statements and Their Impact on the Assessment:
The AO's assessment was based on statements from key individuals, which were later retracted. The Tribunal highlighted that a retracted statement loses its evidentiary value unless corroborated by independent evidence. The retraction affidavits were admitted as additional evidence under Rule 46A, and during cross-examination, the individuals reaffirmed their retractions. The Tribunal concluded that the AO failed to provide corroborative material to support the original statements, rendering the retractions valid and the original statements unreliable.

5. Examination of the Identity, Creditworthiness, and Genuineness of Shareholder Companies:
The assessee provided comprehensive documentation to prove the identity, creditworthiness, and genuineness of the shareholder companies, including PAN details, financial statements, and bank statements. The AO's notices under Section 133(6) were returned unserved, and the AO failed to produce the directors of the shareholder companies. The Tribunal noted that the AO did not issue further summons or conduct independent verification. The Tribunal upheld the CIT(A)'s finding that the assessee had discharged its onus of proving the identity, creditworthiness, and genuineness of the transactions.

6. Impact of the Amendment to Section 68 by Finance Act, 2012:
The Tribunal addressed the applicability of the amendment to Section 68 by the Finance Act, 2012, which requires shareholder companies to explain the nature and source of funds. The Tribunal clarified that this amendment is prospective, effective from April 1, 2013, and thus not applicable to the assessment year under consideration (2012-13). The Tribunal reiterated that the assessee had already proven the creditworthiness of the shareholder companies, and the AO's inconsistent approach in accepting share capital but not share premium was unjustified.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to delete the addition made under Section 68. The Tribunal emphasized the lack of corroborative evidence, the invalidity of retracted statements, and the comprehensive documentation provided by the assessee to prove the identity, creditworthiness, and genuineness of the shareholder companies. The Tribunal also clarified the non-applicability of the amended Section 68 for the assessment year in question.

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