2024 (9) TMI 1312 - AT - Income Tax

Addition u/s 68 - bogus share application receipts money in the hands of the assessee - assessment solely on the basis of statements of Accomodation entry proviser/sh. Pravin Kumar Jain (a third party, not related to assessee in any manner) recorded during the course of search conducted at his premises HELD THAT - As is evident from the record that case of the assessee was reopened solely based on statement of unrelated party which was also later on retracted. Therefore, as such there is no specific information, which could prove that transactions undertaken by the assessee are of the nature of accommodation entries. It is further submitted that during the course of assessment proceedings as well as appellate proceedings assessee submitted necessary evidence regarding receipts of share application money from the above parties before the AO as well as CIT(A). The documents so submitted for all these investor companies consists of Copy of Share Application form, Copy of Board Resolution, Copy of investor company s PAN Card, Copy of Bank statement showing the payment by an account payee cheque, Income Tax return of the investor company for the year under consideration and of the previous year, copy of companies master data dated 31.03.2009 and 31.03.2015 as to show that the company are active and copy of confirmation and affidavit of the director of the investor company at the time of reassessment proceeding so as to confirm the investment made by the investor company. All this evidence so filed before the ld. AO has not been controverted including the affidavit of the director of the investor company. These evidences so filed proves the identity, credit worthiness and genuineness of the transaction. Here it is worthwhile to note that First Proviso to Section 68 wherein addition on account of Share Application Money / Share Capital can be made, stood inserted to the statue book, by Finance Act 2012, w.e.f. 01.04.2013 and therefore that addition made by ld. AO on account of Share Application Money u/s 68 for the year under consideration is not in accordance with law and it is made without considering the provision of law stood related to the year under consideration. Thus, for the year under consideration from the perusal of section 68, it is evident that assessing officer can make addition u/s 68 only under two circumstances, i.e. (iii) Appellant does not offer any explanation about nature and source of such credit or (iv) Explanation offered by Appellant is not upto the satisfaction of Ld. AO. Here in this case as we note that the assessee provided the explanation and when the assessee provides explanation, before rejecting the same ld. AO has to record dissatisfaction as to why the explanation furnished by the assessee is not acceptable. CIT(A) has merely based on the statement of Shri Praveen Kumar Jain confirmed the addition. Without dealing with the provision of law and evidences provided by the assessee. Addition made by the ld. AO and sustained by the ld. CIT(A) is without appreciating the provision of law prevailing and the evidence placed on record by the assessee. We get support of our view from the decision of apex court in the case of M/s Lovely Exports Pvt. Ltd. 2008 (1) TMI 575 - SC ORDER Assessee has not only given the names and addresses of the shareholders but has also given their PANs. Further assessee to prove genuineness of the transaction also submitted the Share Application form, Board Resolution, ITR s, Confirmation and Affidavit from investors. On the above facts, the decision of the Hon ble Apex Court in the case of CIT V/s. Lovely Exports (P) Ltd. 2008 (1) TMI 575 - SC ORDER as well as Venkateshwar Ispat (P) Ltd. 2009 (5) TMI 290 - CHHATTISGARH HIGH COURT are squarely applicable as the assessee has filed the necessary confirmation and other particulars of shareholders and incidentally all the subscribers are Private Limited Companies and the appellant had received the application money through banking channel. Appeal of the assessee is allowed.

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act.
2. Treatment of share application money as undisclosed income.
3. Reliance on statements of third parties without independent verification.
4. Retraction of statements by third parties.
5. Failure to provide opportunity for cross-examination.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147 of the Income Tax Act:
The assessee challenged the reopening of the assessment under Section 147, arguing that it was based solely on information received from the DGIT (Inv.) Mumbai without independent verification by the Assessing Officer (AO). The AO had relied on the statements of Shri Praveen Kumar Jain, who admitted to providing accommodation entries. The assessee contended that the AO did not form an independent belief and acted on borrowed satisfaction. The Tribunal observed that the AO's reasons for reopening were mechanical and lacked independent application of mind. The Tribunal cited various judicial precedents, including the Hon'ble Gujarat High Court in Seth Brothers vs. CIT, which emphasized that reopening must be based on material facts and not on suspicion or borrowed satisfaction. Consequently, the Tribunal found the reopening to be invalid.

2. Treatment of Share Application Money as Undisclosed Income:
The assessee received share application money from seven companies allegedly controlled by Shri Praveen Kumar Jain. The AO treated this money as undisclosed income under Section 68, relying on the statements of Shri Praveen Kumar Jain, which were later retracted. The assessee provided documentary evidence to prove the identity, genuineness, and creditworthiness of the investor companies, including PAN cards, bank statements, income tax returns, and affidavits. The Tribunal noted that the AO did not independently verify these documents and relied solely on the retracted statements. The Tribunal cited the decision of the Hon'ble Supreme Court in CIT vs. Lovely Exports (P) Ltd., which held that if the identity of the investors is established, the burden shifts to the Revenue to prove that the money belonged to the assessee. The Tribunal found that the assessee had discharged its burden, and the AO's addition was not justified.

3. Reliance on Statements of Third Parties Without Independent Verification:
The AO relied heavily on the statements of Shri Praveen Kumar Jain and his associates, recorded during a search operation, to make the addition. The Tribunal observed that these statements were not corroborated by independent evidence and were retracted by Shri Praveen Kumar Jain. The Tribunal emphasized that reliance on third-party statements without independent verification is not sufficient to make an addition. The Tribunal cited the decision of the Hon'ble Delhi High Court in Sarthak Securities Co. Pvt. Ltd. vs. ITO, which held that the AO must independently verify the information received from the investigation wing.

4. Retraction of Statements by Third Parties:
Shri Praveen Kumar Jain retracted his statements through an affidavit, stating that the statements were made under duress. The Tribunal noted that the AO did not consider the retraction and proceeded with the addition based on the original statements. The Tribunal emphasized that retracted statements have limited evidentiary value and cannot be the sole basis for making an addition. The Tribunal cited the decision of the Hon'ble Supreme Court in Surjeet Singh Chhabra vs. Union of India, which held that retracted confessions must be corroborated by independent evidence.

5. Failure to Provide Opportunity for Cross-Examination:
The assessee requested the opportunity to cross-examine Shri Praveen Kumar Jain, which was denied by the AO. The Tribunal observed that denying the right to cross-examine a witness whose statements are being used against the assessee violates the principles of natural justice. The Tribunal cited the decision of the Hon'ble Supreme Court in Andaman Timber Industries vs. CCE, which held that the denial of the right to cross-examine a witness renders the evidence inadmissible.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the reopening of the assessment was invalid, and the addition of Rs. 60,00,000 as undisclosed income was not justified. The Tribunal emphasized the need for independent verification of third-party statements, consideration of retractions, and the right to cross-examination. The Tribunal directed the deletion of the addition and quashed the reassessment proceedings.

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