2019 (7) TMI 875 - AT - Income Tax

Addition u/s 68 - unexplained share capital - as alleged shareholders premises were found locked and in some cases summons could not be served remain on complied - Search and survey operation u/s 132 /133A - addition of commission that was claimed to be paid thereon to the entry operator - HELD THAT - AO has made enquiry by issuing letter under section 133 (6) and which were found to be replied created suspicion in the mind of the AO. Further, the directors were not produced by the assessee. In response to summons u/s 131 on the companies, no replies were received. There is no indication that how these companies have managed to invest in the appellant company, which is a private limited company where there is no dividend, issued or there is any likelihood of substantial investment return to these companies - information of the investment by the shareholders was unearthed during the course of search on Shri SK Jain. The assessee being private limited company should be in the know of things of the investors when they have made such a huge investment in the assessee company. CIT A has not even looked at the fact that what the assessee company is doing and what is the reason that nine companies operated by one person, comes together, and invest ₹ 70,00,000/- in the assessee company as share capital, in short span of time, which does not have any chance of return or earning huge dividend. All these facts considered in one compass clearly show that the identity of the creditors, creditworthiness of those creditors and genuineness of the transaction is just a make-believe story. AO is correct in making an addition u/s 68 representing unexplained share capital and consequent addition of the commission thereon. - Decided in favour of revenue

Issues Involved:
1. Deletion of addition of INR 7,000,000 made by the AO under Section 68 for unexplained share capital.
2. Deletion of addition of INR 1,22500/- made by the AO for commission claimed to be paid to the entry operator.

Issue-wise Detailed Analysis:

1. Deletion of Addition of INR 7,000,000 under Section 68:

The case revolves around the assessment year 2006-07, where the assessee company declared an income loss of INR 19801/-. A search operation was conducted on 19/04/2010 at the premises of two individuals, revealing that they were involved in providing accommodation entries through dummy companies. The assessee was found to have obtained 14 accommodation entries of INR 500,000 each from nine different companies. Consequently, proceedings under Section 147 read with Section 148 were initiated, and the assessee was asked to produce evidence supporting the identity, creditworthiness, and genuineness of the shareholders who invested INR 7,000,000.

Despite multiple opportunities, the assessee failed to produce the principal officers of the alleged companies. The AO issued notices under Section 133(6) and summons under Section 131, but the responses were found suspicious as they were received from the same post office, and some premises were locked. The AO concluded that the entities were merely accommodation entries and made an addition of INR 7,000,000 under Section 68.

The CIT(A) deleted the addition, stating that the AO made the addition based on suspicion and that the assessee provided sufficient evidence, such as names, addresses, confirmations, incorporation certificates, and bank statements of the shareholders. The CIT(A) held that the AO's suspicion was not a valid ground for making the addition.

2. Deletion of Addition of INR 1,22500/- for Commission:

The AO also made an addition of INR 1,22500/- for commission paid to the entry operator, based on the investigation wing's findings that entry operators charged a commission of 1.75% for providing accommodation entries. The CIT(A) deleted this addition as well, following the deletion of the primary addition under Section 68.

Tribunal's Findings:

The Tribunal observed that the AO conducted detailed inquiries, including issuing notices under Section 133(6) and summons under Section 131, which revealed that the companies did not exist at the given addresses, and the transactions were merely accommodation entries. The Tribunal noted that the CIT(A) failed to address the non-existence of the companies and the non-production of their directors. The Tribunal emphasized that the burden of proving the identity, creditworthiness, and genuineness of the transactions lies with the assessee, which was not discharged.

The Tribunal relied on the Supreme Court's judgment in the case of NRA Iron and Steel Co. Ltd., which held that the assessee must prove the genuineness of the transaction, the identity of the creditors, and their creditworthiness. The Tribunal concluded that the assessee failed to meet these requirements, and the AO's addition under Section 68 was justified.

Conclusion:

The Tribunal reversed the CIT(A)'s order and upheld the AO's addition of INR 7,000,000 under Section 68 and the consequent addition of INR 1,22500/- for commission. The appeal of the AO was allowed, and the order was pronounced in the open court on 15/07/2019.

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