2018 (7) TMI 1080 - AT - Income Tax

Addition u/s 68 - genuineness of share capital received - shares issued at high premium - Held that - No adverse inference can be drawn against the assessee, even if replies were not received from the share subscribers Companies though the notices u/s 133(6) were duly served on them; that it is not the case of the AO that notices had come back unserved or share subscriber Companies were not available at the address given by the assessee Co. - assessee Company produced sufficient documentary evidence including the confirmations, bank statements, balance sheets, ROC records, ITRs & PAN indicating Ward/Circle of the share applicants where they were assessed to income tax and hence, the onus which lay on the assessee to prove the identity, genuineness and creditworthiness of the share subscriber Companies stood duly discharged. Accordingly, ground No. 2 of appeal of the assessee deserves to be allowed. Addition u/s. 69C on account of commission/premium allegedly paid @ 1% to entry operators out of assessee s undisclosed income for receiving bogus accommodation entries in the form of share capital of ₹ 30,50,000, is concerned - Held that - In view of deletion of connected addition on account of share application money, the addition made u/s. 69C of the Act cannot be sustained. Accordingly, ground No. 3 of assessee s appeal also deserves to be allowed. Addition on account of high premium paid for shares cannot be sustained unless and until some material was brought on record by the AO to show that confirmation and other evidences placed by the Assessee were not genuine. No such material is available on record before us. Accordingly, the impugned order of ld. CIT(A) does not suffer from any infirmity while deleting the addition

Issues Involved:
1. Legality of reopening the assessment under sections 147/148 of the Income Tax Act.
2. Sustenance of addition of ?30,50,000 under section 68 of the Income Tax Act on account of share capital received from certain parties.
3. Sustenance of addition of ?30,500 under section 69C of the Income Tax Act on account of commission/premium allegedly paid to entry operators.
4. Deletion of addition of ?62,62,000 by the CIT(A) and the Revenue's challenge against it.
5. Justification of high premium paid for shares.

Issue-wise Detailed Analysis:

1. Legality of Reopening the Assessment under Sections 147/148:
The assessee challenged the reopening of the assessment on the grounds that the reasons recorded were based on vague information from the Investigation Wing and lacked independent enquiry by the Assessing Officer (AO). The Tribunal found that the reasons for reopening were recorded solely based on information from the Investigation Wing without any independent verification by the AO. It was concluded that the AO acted on borrowed satisfaction and did not apply his mind independently. The Tribunal referred to the ITAT Delhi Bench order in the case of ITO vs. Comero Leasing & Financial P. Ltd. and the Jurisdictional Delhi High Court judgment in CIT vs. Suren International P. Ltd., which held that reasons recorded without application of mind are not valid. Consequently, the Tribunal quashed the reassessment order, deeming the initiation of proceedings under sections 147/148 as bad in law.

2. Sustenance of Addition of ?30,50,000 under Section 68:
The assessee argued that the share capital received from four companies was genuine and supported by documentary evidence such as share application forms, confirmations, bank statements, and income tax returns. The CIT(A) sustained the addition as these companies did not respond to notices under section 133(6). However, the Tribunal noted that the notices were duly served, proving the identity of the companies. The Tribunal emphasized that the AO did not confront the assessee with the non-receipt of replies and failed to disprove the documentary evidence provided. The Tribunal relied on various case laws, including CIT vs. Orissa Corporation P. Ltd. and CIT vs. Makhni and Tyagi (P) Ltd., which held that the burden of proof shifts to the Revenue once the assessee provides sufficient evidence. Therefore, the Tribunal concluded that the assessee discharged its onus, and the addition of ?30,50,000 under section 68 was deleted.

3. Sustenance of Addition of ?30,500 under Section 69C:
The addition of ?30,500 was made on the assumption that the assessee paid a 1% commission to entry operators for receiving bogus accommodation entries. Since the Tribunal deleted the related addition of ?30,50,000 under section 68, the connected addition under section 69C could not be sustained. Consequently, the Tribunal allowed the assessee's appeal on this ground.

4. Deletion of Addition of ?62,62,000 by the CIT(A) and the Revenue's Challenge:
The Revenue challenged the deletion of ?62,62,000 by the CIT(A), arguing that the assessee failed to prove the identity, creditworthiness, and genuineness of the transactions. The Tribunal observed that the assessee provided extensive documentary evidence, including confirmations, bank statements, and income tax returns, which were not disproved by the AO. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not make any effort to verify the evidence provided. The Tribunal found no merit in the Revenue's appeal and dismissed it.

5. Justification of High Premium Paid for Shares:
The Revenue argued that the assessee failed to justify the high premium paid for shares. The Tribunal noted that this issue did not emanate from the orders of the authorities below and was not raised during the assessment proceedings. The Tribunal referred to the Jurisdictional Delhi High Court judgment in Pr. CIT vs. AR Leasing Pvt. Ltd., which held that the addition on account of high premium cannot be sustained unless the AO brings material evidence to show that the confirmations and other evidence were not genuine. Since no such material was available, the Tribunal dismissed the Revenue's ground on this issue.

Conclusion:
The Tribunal allowed the assessee's appeal, quashing the reassessment order and deleting the additions under sections 68 and 69C. The Revenue's appeal was dismissed, as the Tribunal found no merit in the grounds raised by the Revenue. The Tribunal emphasized the importance of independent verification by the AO and the necessity of disproving the documentary evidence provided by the assessee.

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