2024 (5) TMI 1068 - AT - Income Tax

Addition u/s 68 - bogus Share Application Money received from various paper companies - specific information was received from the Investigation Wing - CIT(A) deleted addition - HELD THAT - CIT(A) on a very detailed examination was satisfied about identity, creditworthiness and genuineness of the investor companies and held that the assessee had discharged the primary onus to prove their identity, creditworthiness, and genuineness. We, therefore, concur with the finding of the CIT(A) that the AO has made an addition under section 68 of the Act without any basis. CIT(A) has analyzed the transaction with each share holder and assigned reasons as to why the share capital have to be treated as genuine and has rightly deleted the addition. There is no reason to interfere in this finding of fact particularly since nothing has been shown by the department to conclude that the finding of fact was perverse in any manner whatsoever. We hold that the impugned order it did not suffer from any legal infirmity or perversity to the facts on record. We hold that the CIT(A) has been legally justified in deleting the addition made by the AO u/s 68 - Accordingly, the decision of the CIT(A) on the first issue of deleting addition of share capital is sustained. Thus, the 1st ground of appeal of the department is rejected. Commission expenses paid for bogus share application money - The share application money received by the assessee is genuine. Therefore, payment of brokerage/commission does not arise. Hence, the disallowance made by the AO, on account of payment of brokerage/commission is uncalled for and needs to be deleted. Validity of reassessment proceedings - CIT(A) did not adjudicate this ground by holding that since the addition made by the AO have already been deleted, this ground has become academic in nature - HELD THAT - Hon ble Madras High Court in case of CIT Vs. India Cements Ltd. 2019 (8) TMI 1485 - MADRAS HIGH COURT has held that issue of validity of reassessment raised by assessee before CIT(A), taken note of by CIT(A) and not decided by him in view of decision on merits should be taken to have been decided against the assessee. Though assessee did not file an appeal against the order of CIT(A) could support the order on that issue in appeal filed by the department in light of Rule 27 of ITAT Rules and thus Tribunal was right in permitting the assessee to argue on the issue relating to the validity of reassessment proceedings.

Summary

Issues Involved:
1. Deletion of addition of Rs. 3,00,00,000/- on account of bogus Share Application Money.
2. Deletion of addition of Rs. 7,50,000/- on account of commission expenses paid for bogus share application money.

Summary:

1. Deletion of Addition of Rs. 3,00,00,000/- on Account of Bogus Share Application Money:

The Revenue filed an appeal against the order of the CIT(A), Ajmer, who deleted the addition of Rs. 3,00,00,000/- made by the AO on account of bogus share application money. The AO had based the addition on information from the Directorate of Income Tax, Investigation, Ahmedabad, and the statement of Sh. Shirish Chandrakant Shah (SCS) recorded during a search u/s 132, alleging that the assessee received accommodation entries from various companies. The CIT(A) found that the AO did not provide any opportunity for cross-examination of SCS and did not produce any incriminating documents showing cash payments by the assessee. The CIT(A) relied on documentary evidence provided by the assessee, including share application forms, confirmations, affidavits, PAN copies, ITRs, and financial statements, proving the identity and creditworthiness of the share applicants and the genuineness of the transactions. The CIT(A) also referred to the ITAT Jodhpur decision in M/s PSM Realmart Pvt. Ltd. and the Supreme Court decision in Andman Tauber Industries, which supported the assessee's case. The ITAT upheld the CIT(A)'s decision, stating that no addition can be made based on the statement of a third party recorded at the back of the assessee without cross-examination and without corroborative evidence.

2. Deletion of Addition of Rs. 7,50,000/- on Account of Commission Expenses Paid for Bogus Share Application Money:

The AO made an additional addition of Rs. 7,50,000/- on account of commission expenses allegedly paid for obtaining bogus share application money. The CIT(A) deleted this addition, noting that the primary addition of Rs. 3,00,00,000/- had already been deleted and that the payment of brokerage/commission did not arise since the share application money was genuine. The CIT(A) observed that the AO had not brought any material evidence to show that the assessee paid any commission. The ITAT concurred with the CIT(A), emphasizing that no addition can be made based on conjectures and surmises without any corroborative evidence. The ITAT upheld the deletion of the Rs. 7,50,000/- addition.

Additional Grounds:

The assessee raised an additional ground before the CIT(A) challenging the validity of the notice issued u/s 148 and the order passed u/s 147. The CIT(A) did not adjudicate this ground, considering it academic since the additions made by the AO were deleted. The ITAT noted that the assessee did not file an appeal or cross-objection to raise the additional ground and thus challenging the legality of the assessment under Rule 27 of ITAT Rules was not maintainable.

Conclusion:

The ITAT upheld the CIT(A)'s decision to delete both the additions made by the AO, confirming that the assessee had adequately proved the identity, creditworthiness, and genuineness of the share applicants and transactions. The appeal of the department was dismissed.