2012 (11) TMI 193 - AT - Income Tax

Unaccounted share application money - CIT(A) deleted the addition - Held that - The AO did not leave any stone unturned to test and check the identity and creditworthiness of alleged share applicant s office and the genuineness of the transaction but except the self contradictory confirmations in the form of affidavit wherein it has been stated that the amounts in question have been given as unsecured loans . The assessee did not furnish any document or evidence which could be submitted in the form of PAN No., Income tax returns, bank statement, share subscription application, share transfer register etc. thus, the findings of the AO for making addition of Rs. 15 lakh made u/s 68 was based on justified and reasonable grounds & CIT(A) was wrong in holding that the assessee has discharged the initial onus of establishing the identity of the subscribers and the genuineness of the transaction - in favour of revenue. Commission paid to the persons who arranged transaction - CIT(A) deleted the addition - Held that - The AO had made this addition on hyper technical approach on the basis of presumption, therefore, its deletion by the impugned order is held justified - in favour of assessee.

Issues Involved:

1. Deletion of addition of Rs. 15,00,000/- on account of share application money under Section 68 of the Income Tax Act, 1961.
2. Deletion of addition of Rs. 37,500/- on account of commission.
3. Applicability of the Supreme Court judgment in the case of Lovely Exports (P) Ltd. to the present case.
4. Failure of the assessee to prove the physical existence of the share applicants.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of Rs. 15,00,000/- on Account of Share Application Money under Section 68 of the Income Tax Act, 1961:

The revenue challenged the deletion of the addition of Rs. 15,00,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, which pertains to unexplained cash credits. The AO had noted that the assessee received Rs. 15,00,000/- as share application money from two entities, M/s Ganga Infin Pvt. Ltd. and M/s Kuberco Sales Pvt. Ltd. The AO's investigation revealed that these entities had no creditworthiness and were accommodation entry operators. Summons issued to these entities were returned unserved, and an Inspector's report confirmed that these entities did not exist at the given addresses. The AO added the amount to the assessee's income, concluding that the transactions were a camouflage for introducing unaccounted money.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, stating that the AO did not provide the assessee an opportunity to cross-examine the alleged entry providers and relied solely on the Investigation Wing's report without conducting further inquiries. The CIT(A) cited various judgments, including those from the Supreme Court and the Delhi High Court, emphasizing that once the identity of the share applicants is established, the burden shifts to the AO to disprove the evidence provided by the assessee. The CIT(A) concluded that the assessee had discharged its initial onus by providing confirmations from the share applicants.

However, the Tribunal held that the AO had made reasonable efforts to verify the identity and creditworthiness of the share applicants and found that the entities did not exist. The Tribunal noted that the assessee only provided contradictory confirmations and failed to furnish any substantial supporting documents. The Tribunal concluded that the AO's addition of Rs. 15,00,000/- under Section 68 was justified, and the CIT(A) erred in deleting the addition.

2. Deletion of Addition of Rs. 37,500/- on Account of Commission:

The AO had also added Rs. 37,500/- as commission paid to entry operators for arranging the accommodation entries. The CIT(A) deleted this addition, reasoning that since the addition of Rs. 15,00,000/- was deleted, the commission addition had no basis.

The Tribunal, while upholding the addition of Rs. 15,00,000/-, observed that the AO made the commission addition on a presumptive basis without concrete evidence. The Tribunal found the CIT(A)'s deletion of the commission addition justified, although on different reasoning, and confirmed the deletion of the Rs. 37,500/- addition.

3. Applicability of the Supreme Court Judgment in the Case of Lovely Exports (P) Ltd.:

The revenue argued that the CIT(A) wrongly extended the benefit of the Supreme Court judgment in Lovely Exports (P) Ltd. to the present case. The Tribunal clarified that the ratio of the Lovely Exports judgment applies where the AO fails to conduct further inquiries after the assessee provides details of the share applicants. In the present case, the AO conducted thorough inquiries and found the share applicants to be non-existent. Therefore, the Tribunal held that the benefit of the Lovely Exports judgment was not applicable to the assessee.

4. Failure of the Assessee to Prove the Physical Existence of the Share Applicants:

The Tribunal emphasized that the assessee failed to prove the physical existence of the share applicants. The AO's efforts to verify the addresses and the Inspector's report confirmed that the entities did not exist. The Tribunal noted that mere filing of confirmatory affidavits was insufficient without substantial supporting documents. The Tribunal upheld the AO's conclusion that the transactions were a camouflage for introducing unaccounted money.

Conclusion:

The Tribunal partly allowed the revenue's appeal, upholding the addition of Rs. 15,00,000/- under Section 68 of the Income Tax Act, 1961, while confirming the deletion of the Rs. 37,500/- addition on account of commission. The Tribunal emphasized the importance of substantial evidence in proving the identity and creditworthiness of share applicants and the genuineness of transactions.

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