2020 (10) TMI 614 - AT - Income Tax

Addition u/s 68 towards unexplained share application / share premium - sworn statement accepted the factum of giving accommodation entries and creditworthiness of the lender as well as genuineness of transaction was not proved - CIT-A deleted addition - HELD THAT - The assessee prima-facie has complied with the ingredients required u/s 68 of the Act of genuinity, identity and creditworthiness. The CIT(A) relied on the Catena of judicial decisions in his order and has test checked the creditworthiness and identity of shareholders and came to a reasonable conclusion that the assessee has discharged its burden on submitting the information. A.O has failed to make further enquiries and relied only on statement of the key person, which was retracted subsequently. We found the order of the CIT(A) is a reasoned and logical order, where the CIT(A) has dealt on the facts, provisions of law and Judicial decisions and applied the Ratio of decisions to the present case and deleted the addition. DR could not controvert the findings of the CIT(A) with any new cogent evidence. - Decided against revenue.

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act towards unexplained share application/share premium.
2. Satisfaction of the three ingredients required under Section 68: identity, genuineness, and creditworthiness of the investors.
3. Reliance on statements from third parties without cross-examination.
4. Failure of the Assessing Officer (AO) to conduct further inquiries.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made Under Section 68:
The Revenue filed an appeal against the CIT(A)'s order directing the AO to delete the addition of ?1,60,00,000/- made under Section 68 of the Income Tax Act towards unexplained share application/share premium. The AO had treated the investments from three companies as unexplained cash credits based on the information received from the Investigation Wing, which indicated that the assessee had availed accommodation entries from companies related to Praveen Kumar Jain.

2. Satisfaction of the Three Ingredients Under Section 68:
The CIT(A) observed that the assessee had discharged its burden by providing necessary information to prove the identity, genuineness, and creditworthiness of the transactions. The assessee submitted details such as PAN, income tax returns, audited financial statements, bank statements, and other relevant documents of the investor companies. The CIT(A) concluded that the AO failed to make further inquiries and did not specify what additional material was required. The CIT(A) directed the AO to delete the addition, stating that the assessee had satisfactorily explained the identity, creditworthiness, and genuineness of the share application transactions.

3. Reliance on Statements from Third Parties Without Cross-Examination:
The AO relied on statements from Praveen Kumar Jain, who allegedly provided accommodation entries. However, these statements were not confronted to the assessee, nor was the opportunity for cross-examination provided. The CIT(A) noted that the AO's reliance on such statements without giving the assessee a chance to rebut them was unjustified. The CIT(A) emphasized that the AO should have conducted independent inquiries and not solely relied on third-party statements.

4. Failure of the AO to Conduct Further Inquiries:
The CIT(A) highlighted that the AO did not conduct any independent inquiries into the information submitted by the assessee. Despite the assessee providing substantial documentary evidence, the AO disregarded this and relied only on the statements from the Investigation Wing. The CIT(A) found that the AO's approach was flawed as he did not utilize the credible material available to him nor did he specify what additional information was required from the assessee.

Conclusion:
The Tribunal upheld the CIT(A)'s order, agreeing that the assessee had satisfactorily discharged its burden under Section 68 by providing comprehensive details to prove the identity, genuineness, and creditworthiness of the investors. The Tribunal noted that the AO failed to conduct further inquiries and relied solely on third-party statements without providing the assessee an opportunity for cross-examination. The Tribunal found the CIT(A)'s order to be reasoned and logical, and thus, dismissed the Revenue's appeal. The appeal filed by the Revenue was dismissed, and the order was pronounced in the open court on 12.10.2020.

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