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2024 (3) TMI 881 - AT - Income TaxAddition u/s 68 - unexplained cash credit - A.O concluded that as the assessee company had failed to substantiate the identity and creditworthiness of the share applicant/subscriber company - whether or not the dual set of conditions contemplated u/s. 68 of the Act had been satisfied by the assessee company? - Onus to prove - HELD THAT - The assessee company in discharge of the primary onus that was cast upon it had placed on record with the A.O supporting documentary evidence substantiating the authenticity of its claim of having received share application money from the share applicant/subscriber company, viz. confirmation of the share applicant/subscriber company, bank statement, copies of the return of income, financial statements of the investor company, copy of share application forms, copy of PAN, copy of memorandum and articles of association, copy of board resolution and return of allotment in Form No.2. On a perusal of the confirmation of the share applicant/subscriber company, we find that the investor company had not merely confirmed the transaction of having invested Rs. 2.05 crore towards share application money with the assessee company but had categorically furnished the complete source from where the said investment was so made. There is no word of whisper by the A.O. as to why the aforesaid confirmation of the investor company was not to be accepted. We are unable to comprehend that now when the investor company had provided the complete details about the source of source of the investment made with the assessee company, then, on what basis the A.O without dislodging or disproving the correctness of the said explanation of the assessee company could have proceeded with and summarily drawn adverse inferences as regards the genuineness of the transaction under consideration. We are of the view that the assessee company had discharged the double facet onus that was cast upon it as regards proving the authenticity of its claim of having received genuine share application money from the aforementioned investor company, viz. M/s. Modakpriya Merchandise P. Ltd., viz. (i). by substantiating based on documentary evidence the nature and source of the amount so credited in its books of account, i.e. receipt of the share application money from the aforementioned investor company; and (ii). by coming forth with a duly substantiated explanation about the nature and source of the sum so credited in the name of the investor company, viz. M/s. Modakpriya Merchandise P. Ltd. as per the mandate of the 1st proviso to Section 68 - We find that the A.O had not uttered a word about the aforesaid documentary evidence which was filed by the assessee company in discharge of the primary onus that was cast upon it as regards proving the authenticity of its claim of having received genuine share application money from the aforementioned share applicant/subscriber company. Thus where the assessee had produced sufficient documents in the discharge of its initial onus of proving the identity and creditworthiness of the share applicant/subscriber company, then, it is incumbent on the part of the A.O to undertake some inquiry and investigation before concluding on the issue of creditworthiness, failing which, no addition could be made u/s. 68 of the Act. Decided in favour of assessee.
Issues Involved:
1. Deletion of addition of Rs. 2,05,00,000/- u/s 68 of the Act. 2. Failure to prove the identity, genuineness, and creditworthiness of the investor company. 3. Non-consideration of findings supported by legal precedents. 4. Ignoring the ratio of various judicial decisions. 5. Failure to prove the source and nature of credit entries. 6. Consideration of circumstantial evidence. 7. Contradiction to settled law of the Hon'ble Bombay High Court. 8. Justification of deletion in absence of satisfaction of parameters u/s 68. 9. Acceptance of identity and creditworthiness of entities as genuine. 10. Obligation of proper inquiry by the CIT(A). 11. Nexus between conclusion of fact and primary fact. 12. Erroneous order both in law and on facts. 13. Any other ground at the time of hearing. Summary: Issue 1: Deletion of Addition u/s 68 of the Act The CIT(A) deleted the addition of Rs. 2.05 crore made by the AO u/s 68, observing that the AO's inquiry was conducted at an incorrect address and the results were not confronted to the assessee. The CIT(A) noted that the assessee provided all necessary documents such as ITR, audited balance sheet, bank account statement, and ROC certificate, establishing the identity, creditworthiness, and genuineness of the investor company, M/s. Modakpriya Merchandise Pvt. Ltd. Issue 2: Identity, Genuineness, and Creditworthiness The CIT(A) found that the AO failed to establish the non-existence of the investor company as the inquiry was conducted at the wrong address. The assessee had provided sufficient evidence including PAN, ROC certificate, and bank statements to prove the identity and genuineness of the transactions. Issue 3: Non-consideration of Findings Supported by Legal Precedents The CIT(A) relied on various judicial precedents, including the Hon'ble Supreme Court's decision in CIT Vs. Lovely Exports (P) Ltd., and the Chhattisgarh High Court's decision in ACIT Vs. Venkateshwar Ispat (P) Ltd., which supported the assessee's case. Issue 4: Ignoring the Ratio of Various Judicial Decisions The CIT(A) observed that the AO ignored the ratio of several judicial decisions which were binding in nature. The CIT(A) emphasized that suspicion alone could not be a basis for holding adversity against the assessee. Issue 5: Source and Nature of Credit Entries The CIT(A) noted that the assessee had provided details of the source of the investment, which was from the sale of investments. The AO's failure to disprove the correctness of the assessee's explanation was highlighted. Issue 6: Circumstantial Evidence The CIT(A) observed that the AO's adverse inference was based on an inquiry carried out at an incorrect address and not on any substantive evidence against the assessee. Issue 7: Contradiction to Settled Law The CIT(A) found that the AO's conclusion was contrary to the settled law as per the Hon'ble Bombay High Court's decision in Sanjay Bimal Chand Jain, Nagpur, which emphasized the need for economic and financial justification for investments. Issue 8: Satisfaction of Parameters u/s 68 The CIT(A) concluded that the assessee had discharged the onus of proving the identity, creditworthiness, and genuineness of the investor, and the AO failed to conduct a proper inquiry. Issue 9: Acceptance of Identity and Creditworthiness The CIT(A) accepted the identity and creditworthiness of the investor company based on the documents provided by the assessee, which were not disproved by the AO. Issue 10: Obligation of Proper Inquiry The CIT(A) criticized the AO for not conducting a proper inquiry and for not confronting the assessee with the results of the inquiry conducted at the incorrect address. Issue 11: Nexus Between Conclusion and Primary Fact The CIT(A) found that the AO's conclusion lacked a nexus with the primary facts and was based on incorrect assumptions. Issue 12: Erroneous Order The CIT(A) concluded that the AO's order was erroneous both in law and on facts, as it was based on an incorrect inquiry and unsupported by substantial evidence. Issue 13: Any Other Ground No additional grounds were raised during the hearing. Conclusion: The appeal filed by the revenue was dismissed, and the cross-objection filed by the assessee was also dismissed. The CIT(A)'s order, which deleted the addition made by the AO u/s 68, was upheld. The Tribunal emphasized the need for proper inquiry and substantial evidence to support any adverse inference against the assessee.
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