2017 (3) TMI 328 - AT - Income Tax

Unexplained cash credit entries - Held that - As in compliance to notices issued u/s 131 of the I.T. Act to both the persons by the AO, details have been furnished. The AO has given the finding that Shri Virender Kumar Jain is closely associated to Sh. Surender Kumar Jain. However, no such report is available on record and Assessing Officer has also not narrated how they are closely associated. M/s Steller Investment Ltd. is connected to Sh. Surender Kumar Jain who is said to be hawala operator is also not clear from the assessment order. In view of these facts, I find that AO has wrongly disbelieve share application money received from M/s Steller Investment Ltd. Regarding the share application money received from Sh. Vijendra Thapliyal and AO noticed that there was a balance of ₹ 15,50,OOO/- before issuing the cheque for share application money. However, he has added this amount on the ground that before issuing the cheque appellant has received some money in the bank account. Without investigating who has given the money before issuing the cheque for share application, AO has disbelieved the transaction. There is no allegation against Shri Vijendra Thapliyal for providing the accommodation entry to the assessee, but Ld. A.O. has added this amount alongwith 2% commission for paying commission to get entries. The action of the AO clearly indicates that he has treated both the transactions similar without assigning any reason. During the year the assessee has not received any income because business was not carried on by the appellant. The AO has wrongly treated the share application money as income of the assessee. If any amount is to be added it should be added in the hand of Directors because only they can take the entry by giving the cash from their pockets.- Decided in favour of assessee Addition on account of share application money - Held that - 2% commission addition was rightly deleted, due to the fact that there is no evidence that assessee has taken entry for share application money.- Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of ?45,00,000/- added by the AO under Section 68 of the Income Tax Act, 1961.
2. Deletion of ?90,000/- added by the AO on account of commission from undisclosed sources.

Issue-wise Detailed Analysis:

1. Deletion of ?45,00,000/- added by the AO under Section 68 of the Income Tax Act, 1961:

The Revenue appealed against the order of the Ld. Commissioner of Income Tax (Appeals) [CIT(A)], who deleted the addition of ?45,00,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961. The AO had reopened the assessment based on information from the Investigation Wing, indicating that the assessee had obtained accommodation entries amounting to ?30 lacs from concerns floated by Sh. Surender Kumar Jain. The AO observed that the assessee failed to establish the identity, genuineness, and creditworthiness of the parties involved in the share application money transactions. Specifically, the AO noted that M/S Steller Investment Ltd. and Sh. Vijendra Thapliyal did not adequately respond to notices or appear for personal deposition.

The CIT(A) found that the AO mechanically relied on the DIT(Inv.) report without making any independent inquiries. The CIT(A) noted that the AO did not investigate the confirmation and affidavit filed by Shri Virender Kumar Jain on behalf of M/S Steller Investment Ltd. Furthermore, the CIT(A) observed that the AO did not provide evidence of how M/S Steller Investment Ltd. was connected to Sh. Surender Kumar Jain. The CIT(A) concluded that the AO wrongly disbelieved the share application money transactions and highlighted that any addition should be made in the hands of the directors, not the company, as the company had not started any business activity. The CIT(A) relied on the Supreme Court decision in CIT v. Bharat Engineering Construction Co. (83 ITR 187), which held that cash credit entries could not be treated as the company's undisclosed income if the company had not commenced business activities.

The Tribunal upheld the CIT(A)'s decision, agreeing that the AO did not conduct necessary inquiries and wrongly disbelieved the transactions. The Tribunal dismissed the Revenue's ground on this issue.

2. Deletion of ?90,000/- added by the AO on account of commission from undisclosed sources:

The AO added ?90,000/- as commission (1% to 2% of the gross amount) on the accommodation entry provided, based on the assumption that the assessee paid commission from undisclosed sources. The CIT(A) deleted this addition, reasoning that since the primary addition of ?45,00,000/- was deleted, the commission addition also lacked evidence.

The Tribunal agreed with the CIT(A), noting that there was no evidence to support the claim that the assessee paid commission for obtaining share application money entries. Consequently, the Tribunal upheld the CIT(A)'s deletion of the ?90,000/- commission addition and dismissed the Revenue's ground on this issue.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete both the additions of ?45,00,000/- under Section 68 and ?90,000/- on account of commission. The Tribunal found that the AO did not conduct necessary inquiries and relied on unsubstantiated assumptions, leading to the wrongful additions. The Tribunal's decision was pronounced in the Open Court on 02/02/2017.