2020 (2) TMI 1224 - AT - Income Tax

Addition u/s 68 - addition on account of share capital - No query to the directors of the investor companies - HELD THAT - When the redeemable preferential shares have been redeemed to the investor companies in subsequent years which is much prior to the search, therefore, these investments are genuine. We further find from the various pages of the paper book that in response to the notice issued u/s 133(6) to the investor companies, the directors of the respective investor companies appeared before the AO whose statements were recorded u/s 131 and they have confirmed to have invested in the shares of the assessee company. Not a single question was put to any of the directors of these investor companies as to why they have invested crores of rupees in a non-listed company without any return. We, therefore, find merit in the argument of assessee that without discharging the onus cast on the AO by not putting a single query to the directors of the investor companies who appeared before him in response to notice u/s 133(6) and whose statements were recorded u/s 131 on oath, the AO cannot make an allegation in the assessment order as to why they have invested in such non-descript company. So far as the allegation of the AO that the bank account show back to back entries is concerned, we find merit in the argument of the ld. Counsel that the investor companies have withdrawn money from companies where funds were invested earlier and they invested money in the assessee company in the shape of preference shares and, therefore, this prudent financial planning should not be viewed adversely and, rather, it supports the case of the assessee that there was source of funds invested by the investor company in the shares of the assessee company. We further find the various inferences/statements/materials which were the basis for the addition by the AO were never confronted to the assessee before being used by the AO against the assessee. From the various details furnished by the assessee, we find the assessee, in the instant case, has discharged the onus cast on it by producing the directors of the investor companies whose statements were recorded and who have admitted to have invested in the assessee company. The directors have explained the source of such investment by producing relevant details such as bank statements, copy of the income-tax returns, audited accounts of the investor companies, etc. to substantiate the identity and credit worthiness of the loan creditor and genuineness of the loan transaction. Further, the amounts have subsequently been refunded to the investor companies during F.Y. 2014-15 which is much prior to the date of search. We find, under somewhat identical circumstances, the Kolkata Bench of the Tribunal in the case of M/s Baba Bhootnath Trade Commerce Ltd. 2019 (4) TMI 1297 - ITAT KOLKATA has deleted the addition made by the AO In the instant case, when the assessee has substantiated the three ingredients of section 68 of the IT Act and moreover, such amount has been refunded to the investor companies in subsequent years which is much prior to the date of search. We are of the considered opinion that the addition made by the AO and sustained by the CIT(A) is not justified. Accordingly, we direct the AO to delete the addition made by him u/s 68 of the Act for both the years. - Decided in favour of assessee.

Issues Involved:
1. Validity of assessment under Section 153A of the Income Tax Act.
2. Addition of share capital and share premium under Section 68 of the Income Tax Act.
3. Justification of share premium charged by the assessee.
4. Allegation of accommodation entries and back-to-back transactions.
5. Non-confrontation of adverse materials/statements to the assessee.
6. Charging of interest under Sections 234A, 234B, 234C, and 234D of the Income Tax Act.

Detailed Analysis:

1. Validity of Assessment under Section 153A:
The assessee challenged the validity of the assessment under Section 153A, arguing it was done in the absence of any incriminating material. However, this ground was dismissed based on the decision of the Hon’ble Allahabad High Court in the case of Raj Kumar Arora, which upheld the validity of such assessments even without incriminating material.

2. Addition of Share Capital and Share Premium under Section 68:
The AO made additions of ?29.50 crores for AY 2013-14 and ?20.51 crores for AY 2014-15, treating the share capital and premium received from certain companies as unexplained under Section 68. The AO questioned the creditworthiness of the investor companies and the genuineness of the transactions, citing back-to-back transactions and low income declared by the investor companies. The assessee argued that it had provided all necessary documents, including share certificates, bank statements, income-tax returns, and audited balance sheets to substantiate the identity and creditworthiness of the investors and the genuineness of the transactions.

3. Justification of Share Premium:
The AO and CIT(A) questioned the high share premium of ?90 per share, which the assessee failed to justify with cogent evidence such as a valuation report. The Tribunal noted that the assessee had redeemed the shares in subsequent years, indicating the transactions were genuine. The Tribunal also observed that the AO had accepted similar transactions in preceding and subsequent years.

4. Allegation of Accommodation Entries and Back-to-Back Transactions:
The AO alleged that the investor companies were involved in providing accommodation entries and that their bank statements showed back-to-back transactions. The Tribunal found that the directors of the investor companies appeared before the AO and confirmed the investments. The Tribunal held that prudent financial planning by the investor companies, which involved withdrawing funds from other investments to invest in the assessee company, should not be viewed adversely.

5. Non-Confrontation of Adverse Materials/Statements:
The Tribunal noted that the adverse materials and statements used by the AO to make additions were never confronted to the assessee. Citing the Supreme Court's decision in Andaman Timber Industries, the Tribunal emphasized that any statement not cross-examined by the affected party cannot be relied upon.

6. Charging of Interest under Sections 234A, 234B, 234C, and 234D:
The Tribunal did not specifically address the issue of charging interest under Sections 234A, 234B, 234C, and 234D, as the primary focus was on the validity of the additions made under Section 68.

Conclusion:
The Tribunal concluded that the assessee had discharged its onus of proving the identity and creditworthiness of the investor companies and the genuineness of the transactions. The Tribunal directed the AO to delete the additions made under Section 68 for both assessment years, thereby allowing the appeals filed by the assessee.

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