2023 (5) TMI 1047 - AT - Income Tax

Unexplained cash credit u/s 68 - share application money received / share capital issued at premium - Genuity of investment by investor companies - AO primarily based on the statements of Entry Operator and the Directors of the investor companies that the entities were not existing at the address mentioned and the assessee did not produce the Directors for examination but only filed all the documentary evidences - HELD THAT - Source of investment made against the share capital/ premium/ warrants, stands explained, as appellant and investor companies, have substantiated the same by furnishing evidences and proved the Identity, genuineness of transactions and creditworthiness of investor companies. Provisions of section 68 of the Act, are not attracted in the case of appellant, as investment by investor companies, is considered as explained. Therefore, in these facts and circumstances, we decline to interfere with the order of the ld. CIT(A). Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition on account of unexplained cash credit under Section 68 of the IT Act.
2. Validity of the retraction of statements by entry operators and directors.
3. Compliance with procedural requirements under Sections 147 and 148 of the IT Act.
4. Genuineness and creditworthiness of the investor companies.
5. Admissibility and weight of evidence gathered during search and post-search proceedings.

Summary:

Issue 1: Deletion of Addition on Account of Unexplained Cash Credit under Section 68 of the IT Act
The Revenue contested the deletion of Rs. 5,50,00,000/- added by the AO as unexplained cash credit under Section 68 of the IT Act. The AO's addition was based on statements from entry operators and directors of investor companies, who claimed ignorance of the transactions. The CIT(A) deleted the addition, noting that no incriminating documents were found during the search, and the identity and genuineness of the investor companies were established.

Issue 2: Validity of Retraction of Statements by Entry Operators and Directors
The Revenue argued that the retractions by entry operators and directors were made at the fag end of the assessment proceedings and should not be given credence. The assessee countered that the retractions were supported by affidavits and that no cross-examination was allowed, violating the principles of natural justice. The Tribunal upheld the CIT(A)'s view that the retractions, supported by affidavits, weakened the AO's reliance on the initial statements.

Issue 3: Compliance with Procedural Requirements under Sections 147 and 148 of the IT Act
The Revenue claimed that the notice under Section 148 was issued after recording reasons under Section 147 and following the due procedure. The Tribunal found that the AO had not provided sufficient evidence to support the addition, even though procedural compliance was noted.

Issue 4: Genuineness and Creditworthiness of the Investor Companies
The Revenue argued that the documents filed by the assessee did not prove the genuineness of the transactions or the creditworthiness of the investors. The Tribunal noted that the assessee provided comprehensive documentary evidence, including PAN cards, income tax returns, audited financial statements, and bank statements of investor companies, proving their identity and creditworthiness.

Issue 5: Admissibility and Weight of Evidence Gathered During Search and Post-Search Proceedings
The Revenue relied on statements from entry operators and directors, physical verification reports, and the absence of companies at their registered addresses. The Tribunal found that the AO's addition was based solely on these statements and reports, without corroborative evidence. The CIT(A) observed that the investor companies' bank accounts were closed before the search, and the adverse inference drawn by the AO was incorrect.

Conclusion:
The Tribunal upheld the CIT(A)'s order, concluding that the assessee had discharged its onus under Section 68 of the IT Act. The Revenue failed to provide cogent evidence to prove that the assessee received accommodation entries. Consequently, all appeals by the Revenue were dismissed, and the cross-objections by the assessee were deemed infructuous. The order was pronounced in the open court on 09/05/2023.