2023 (12) TMI 584 - AT - Income Tax

Addition u/s 68 - unexplained cash credit in the form of share capital with premium - main allegation is that, out of 15 parties, 8 of the companies to whom shares were issued were controlled / managed by Shri Praveen Kumar Jain, who was engaged in providing accommodation entries - reason to belief was entertained that amount of Rs. 2 Crores from such parties were subscribed optionally convertible non-cumulative preference shares had escaped assessment - HELD THAT - Even though some of the parties may not have responded to notice u/s. 133(6) that does not prove that the entire transactions are bogus especially when all other documents to prove the identity and creditworthiness of the parties have been submitted and same has not been examined or enquired by the AO. We also tried to enquire upon the funds available with these parties which we have already incorporated above, and found that all the parties had huge funds including profit and they continue their operations and activities till date. How such corporate entities which are still existing and running their business activities and complying with the statutory requirements can be said to be bogus. Once these parties were allotted redeemable preference shares and have been redeemed much before any search taken place in the case of Shri Pravin Kumar Jain, then we are unable to agree with the contention of the department that simply because, some of the entities belong to Shri Praveen Kumar Jain, the transaction itself is bogus. Is there any evidence or material found qua this transaction showing that right from subscription to redemption something has been found to mere paper formality or some kind of bogus or accommodation entry. At the time of redemption, these parties have redeemed at Rs. 100 Rs. 10/- and in such case it cannot be held that there was any manipulation at the investment stage by these companies that preference shares were issued with premium by taking cash then assessee bought back by paying extra Rs. 10 which is otherwise taxable in the hands of the investors. Thus, in the peculiar facts when all these corporate entities are still existing and doing business and have credentials till date, then it cannot be held that they are sham and bogus entities. Here it is a case of issuance of preference shares which has been redeemed on premium by the subscribers and it is not that any kind of share application received and shares have not been allotted or after allotment shares have been sold at face value or less price. Thus, CIT (A) rightly held that the identity and creditworthiness has been established and genuineness of the transaction cannot be doubted, simply based on information from Praveen Jain Group unless something specific material has been found. Accordingly, the order of the CIT (A) in so far as merits are concerned as incorporated above is confirmed. In so far as his observation and finding that premium is capital hence not taxable is not accepted as here the issue is taxability of entire credit received including premium. But his findings on merits are confirmed and consequently the appeal of the Revenue is dismissed.

Issues Involved:
1. Deletion of addition of Rs. 475 lacs under Section 68 of the Income Tax Act for unexplained cash credit in the form of share capital with premium.
2. Failure of the assessee to produce any subscriber for examination by the AO.
3. Involvement of Shri Pravin Kumar Jain in issuing bogus accommodation entries.
4. Deletion of addition under Section 68 based on documentary evidence without considering the facts.
5. Deletion of addition under Section 68 without considering the Supreme Court decisions in Sumati Dayal and Modowell.
6. Justification of credit entries based on repayment to subscribers despite allegations against Shri Pravin Kumar Jain.

Summary:

Issue 1: Deletion of Addition of Rs. 475 lacs under Section 68
The Revenue contested the deletion of Rs. 475 lacs by the CIT(A), arguing that the assessee failed to prove the genuineness of the share capital received. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had provided sufficient documentation, including share applications, PAN numbers, bank statements, IT returns, and annual reports, to prove the identity and creditworthiness of the creditors and the genuineness of the transaction.

Issue 2: Failure to Produce Subscribers for Examination
The Revenue argued that the assessee failed to produce any subscriber for examination. The Tribunal found that the assessee had submitted various documents to prove the identity and creditworthiness of the investors. The Tribunal also noted that the shares were redeemed within two years, and the transactions were conducted through banking channels, further supporting the genuineness of the transactions.

Issue 3: Involvement of Shri Pravin Kumar Jain
The Revenue claimed that Shri Pravin Kumar Jain was involved in issuing bogus accommodation entries. The Tribunal noted that the AO had relied heavily on the statements from the Pravin Kumar Jain group without considering the positive evidence provided by the assessee. The Tribunal found that most of the companies involved were still active and complying with statutory requirements, indicating that they were not mere paper companies.

Issue 4: Deletion Based on Documentary Evidence
The Revenue argued that the CIT(A) erred in deleting the addition based on documentary evidence without considering the facts. The Tribunal upheld the CIT(A)'s decision, noting that the AO had not provided any justification for disregarding the documents submitted by the assessee. The Tribunal found that the assessee had submitted sufficient evidence to prove the identity and creditworthiness of the investors.

Issue 5: Supreme Court Decisions in Sumati Dayal and Modowell
The Revenue contended that the CIT(A) failed to consider the Supreme Court decisions in Sumati Dayal and Modowell. The Tribunal found that the CIT(A) had correctly applied the law and that the assessee had discharged its burden of proof by providing sufficient documentation to support the transactions.

Issue 6: Justification of Credit Entries Based on Repayment
The Revenue argued that the CIT(A) erred in accepting the assessee's plea that repayment to subscribers justified the genuineness of the credit entries. The Tribunal found that the shares were redeemed at a premium, and there was no evidence of manipulation or bogus transactions. The Tribunal concluded that the identity, creditworthiness, and genuineness of the transactions had been established.

Conclusion:
The Tribunal confirmed the CIT(A)'s findings on the merits, holding that the identity and creditworthiness of the parties and the genuineness of the transactions had been established. The appeal of the Revenue was dismissed.

← Previous Next →