2019 (11) TMI 148 - AT - Income Tax

Addition of share capital u/s 68 - HELD THAT - Assessee produced sufficient documentary evidences before the A.O. to prove that money routed from the assessee itself which came back to the assessee in the form of share capital/premium, therefore, assessee proved identity of the Investors, their creditworthiness and genuineness of the transaction in the matter and as such have been able to prove ingredients of Section 68 - A.O. however did not make any further enquiry on the documentary evidences filed by the assessee. A.O. did not verify the trail of the source of funds received by assessee through various entities as explained above. We may also note that during the course of hearing of these appeals, A.O. was present in the Court, but, did not make any adverse comment upon the documentary evidences filed in the paper book filed by the assessee. A.O. thus, failed to conduct scrutiny of the documents at assessment stage and merely suspected the transaction between the Investor Companies and the assessee company despite the fact that in the deviation report the A.O. expressed doubts in making addition into the matter. It may also be noted here that no cash have been reported to have been deposited in the accounts of the assessee, the Investor Companies and other related parties. We are of the view that assessee has been able to prove that it has received genuine amounts which is routed through various companies. Therefore, there was no justification to make any addition under section 68. There is no evidence on record that assessee paid any amount on account of commission for arranging any transaction because it was a genuine transaction between the parties. Therefore, there is no justification to make the addition under section 69C of the I.T. Act as well. In view of the above, we set aside the Orders of the authorities below and delete the entire additions in all the assessment years under appeals Addition on account of the bogus purchases out of books sales and suppressed profit - HELD THAT - The books of accounts were duly audited as per the companies act and as per the income tax act. No defects in such books were found either by the learned assessing officer or by the learned CIT A. Based on the information furnished by the assessee the learned assessing officer proceeded to make an addition at the rate of 25% of such purchases without conducting any enquiry. In the deviation proceedings, the learned assessing officer after scrutiny of the books of accounts, appraisal report and statement of the managing director of the company, which was retracted, held that no such addition should have been made. In the remand proceedings, also the AO held that on enquiry also made on test check basis of the 50% of the items got confirmed - on perusal of the deviation report and appraisal report that 4 the concluded assessment is no incriminating evidences were found. 25% of the purchases from the alleged bogus parties without finding any evidence and ignoring the sales paid by them to the assessee. Further, the learned CIT A applied the provisions of section 145 (3) of the income tax act by rejecting the books of accounts of the assessee partially, without even looking at the books of accounts is also incorrect. In view of this the addition made by the learned assessing officer for all those years on account of bogus purchases deserves to be deleted for concluded assessment as well as pending assessments. Addition u/s 68 on account of cash deposited in banks post demonetization - HELD THAT - As per retraction letter dated 24/3/2017 of the managing director of the company which was submitted on 31/3/2017 where assessee has revised its disclosure from INR 50 crores to INR 30 crores under PMGKY. There is no whisper of further recording the statement of the managing director to show how the original disclosure was incorrect. In fact, revenue accepted the revised disclosure made by the managing director. In view of above facts the additions sustained by the learned CIT A of INR 73.13 crores are deleted thus ground number 5 of the appeal of the assessee for assessment year 2017 18 is allowed.

Issues Involved:
1. Legitimacy of additions under Section 68 for unexplained share capital and premium.
2. Validity of additions for alleged bogus purchases.
3. Legitimacy of additions for cash deposits during the demonetization period under Section 68.

Detailed Analysis:

1. Legitimacy of Additions under Section 68 for Unexplained Share Capital and Premium:
The primary issue was whether the additions made under Section 68 for unexplained share capital and share premium were legitimate. The assessee argued that the share capital and premiums were genuine and supported by documentary evidence, including bank statements and confirmations from the investors. The Tribunal noted that the share capital received from various entities was essentially the assessee's own money routed back through these entities, as confirmed by the Managing Director's statement. The Tribunal also observed that the photocopies of blank share transfer forms and other documents found during the search were not sufficient to classify the transactions as sham. The Tribunal concluded that the additions under Section 68 were not justified, as the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions. Consequently, the Tribunal deleted the additions made under Section 68 for the assessment years 2012-13 to 2017-18.

2. Validity of Additions for Alleged Bogus Purchases:
The second issue was the validity of additions made for alleged bogus purchases. The Assessing Officer (AO) had made additions based on the statement of the Managing Director and the alleged bogus transactions with certain entities. The Tribunal noted that the AO had not provided sufficient evidence to substantiate the claim of bogus purchases. The Tribunal also observed that the assessee had maintained detailed stock records and that the purchases and sales were supported by proper documentation. The Tribunal found that the AO had not conducted a thorough investigation and had relied on assumptions and suspicions. The Tribunal concluded that the additions for bogus purchases were not justified and deleted the additions for the assessment years 2012-13 to 2017-18.

3. Legitimacy of Additions for Cash Deposits During the Demonetization Period under Section 68:
The third issue was the legitimacy of additions made for cash deposits during the demonetization period under Section 68. The AO had made additions on the grounds that the cash deposits were not in line with the normal trend and that the assessee had manipulated its books to show higher gross profit margins. The Tribunal noted that the assessee had provided a reasonable explanation for the cash deposits, stating that they were proceeds from cash sales. The Tribunal also observed that the cash deposits were supported by the assessee's books of accounts and that there was no evidence of backdating or fictitious sales. The Tribunal found that the AO had not conducted a proper investigation and had relied on assumptions. The Tribunal concluded that the additions for cash deposits during the demonetization period were not justified and deleted the additions for the assessment year 2017-18.

Conclusion:
The Tribunal concluded that the additions made under Section 68 for unexplained share capital and premium, alleged bogus purchases, and cash deposits during the demonetization period were not justified. The Tribunal deleted all the additions for the assessment years 2012-13 to 2017-18.

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