2020 (3) TMI 339 - AT - Income Tax

Addition u/s 68 - bogus share application money received from various paper companies for which specific information as received from the Investigation Wing - information received from the investigation wing that these are paper companies leads to the conclusion / destination, as the information called for u/s 133(6) of the I.T. Act, 1961 at the known addresses of these companies returned back unserved with remarks Not Known - HELD THAT - The information filed by the assessee as required by the AO is incompliance of the said letter/notice. Moreover, the AO has not given the finding about the genuineness of these documents filed by the assessee which means that the AO has not found any defect in the documents filed by the assessee. The assessee has clearly filed all the documents which include share application money, Resolution of share applicant companies whereby the directors were authorized to make investment in the shares of the assessee company, bank statements showing payment through banking channel and return of income filed by those companies. Once these documents were filed then the identity of the share applicant companies stand proved. The assessee also produced the bank statements and the AO has not even pointed out that the funds transferred from the bank account of these companies are actual money of the assessee routed through these companies. Therefore, the creditworthiness and genuineness of the transactions is also proved by producing all these documentary evidences. Further out of 06 companies to whom the shares were issued at a premium of ₹ 490/- per share, the AO has accepted the transaction of receipt of share premium from remaining 03 companies which itself demolishes the case of the AO that the assessee company does not carry the worth of such a premium of ₹ 490/- per share. Once the assessee has discharged its primary onus by filing the documentary evidences, proving the identity and creditworthiness of these companies as well as transactions then the burden is shifted on the AO to bring the material on record to controvert the documentary evidences filed by the assessee Documentary evidences filed by the assessee clearly discharges the onus casted on the assessee company and therefore, in the absence of any contrary material or findings to point out any defect in these documentary evidences, the addition made by the AO is not justified. Addition made by the AO based on the statement of alleged entry provider which was recorded by the Investigation Wing, Mumbai was not found sustainable when the assessee produced all the documentary evidences to discharge its onus to prove the transaction. - Decided against revenue

Summary

Issues Involved:

1. Deletion of addition made on account of bogus share application money.
2. Non-appreciation of the fact that information from the Investigation Wing indicated paper companies.
3. Non-appreciation of the discrepancy in share issuance at par value versus premium.
4. Reliance on a retracted statement without cross-examination.
5. Disregarding the decision of the Hon'ble Jurisdictional High Court of Rajasthan.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Bogus Share Application Money:
The Revenue contested the deletion of ?2,15,00,000/- added by the AO as bogus share application money from various paper companies. The AO based the addition on information from the Investigation Wing, Mumbai, and the statement of Shri Praveen Kumar Jain, which was later retracted. The CIT(A) deleted the addition, emphasizing that the addition was solely based on a third-party statement without giving the assessee an opportunity for cross-examination. The assessee provided various documents to support the genuineness of the transactions, including confirmations, bank statements, and income tax returns of the share applicant companies. The Tribunal upheld the CIT(A)'s decision, noting the absence of any contrary material from the AO to disprove the documentary evidence provided by the assessee.

2. Non-appreciation of Information from the Investigation Wing:
The AO received information from the Investigation Wing that the share applicant companies were paper companies managed by Shri Praveen Kumar Jain, who admitted to providing bogus accommodation entries. However, the Tribunal noted that the AO failed to provide details of the notices issued under Section 133(6) of the I.T. Act and did not find any defects in the documents submitted by the assessee. The Tribunal emphasized that the identity, creditworthiness, and genuineness of the transactions were established through the documents provided by the assessee.

3. Discrepancy in Share Issuance at Par Value versus Premium:
The Revenue argued that the assessee issued shares at par value to promoters while issuing shares at a premium of ?490/- per share to other companies without justification. The Tribunal found that the AO accepted the share premium from three other companies, which undermined the AO's argument against the three contested companies. The Tribunal referenced the commercial decision-making prerogative of the company's directors and shareholders regarding share premiums, as supported by the Hon'ble Madhya Pradesh High Court in the case of Pr. CIT vs Chain House International Pvt. Ltd.

4. Reliance on Retracted Statement without Cross-Examination:
The CIT(A) and the Tribunal highlighted that the addition was based on the retracted statement of Shri Praveen Kumar Jain, recorded during a search and seizure operation. The Tribunal emphasized that such a statement, recorded behind the back of the assessee and without cross-examination, could not be considered valid evidence. The Tribunal cited the Hon'ble Supreme Court's decision in Andaman Timber Industries, which mandates the opportunity for cross-examination when relying on third-party statements.

5. Disregarding the Decision of the Hon'ble Jurisdictional High Court:
The Revenue contended that the CIT(A) disregarded the decision of the Hon'ble Jurisdictional High Court in the case of Rameshwar Lal Mali vs CIT. The Tribunal, however, found that the CIT(A) appropriately relied on various documentary evidences and judicial precedents to support the deletion of the addition. The Tribunal noted that the AO did not bring any material on record to counter the documentary evidence submitted by the assessee.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order to delete the addition of ?2,15,00,000/- made on account of bogus share application money. The Tribunal concluded that the assessee had discharged its onus by providing sufficient documentary evidence to prove the identity, creditworthiness, and genuineness of the transactions. The Tribunal also emphasized the necessity of cross-examination when relying on third-party statements and upheld the commercial discretion of the company's directors and shareholders in determining share premiums.