2020 (11) TMI 596 - AT - Income Tax

Addition u/s. 68 - Treating the Share Application Money as Unexplained Cash Credit - Addition relying upon third party statement - whether no incriminating documents/materials were found during the course of Search Action/Proceedings? - HELD THAT - Despite the fact that share applicant have responded to the notice issue under section 133(6) of the Act and details filed along with relevant documents for establishing identity of the parties and genuineness of transaction. We also noted that the AO was excessively influenced by the information received from DDIT, Investigation Wing, Mumbai regarding search action conducted in the case of one Shri Praveen Kumar Jain and his group and the statement recorded of Shri Praveen Kumar Jain. The AO has not independently proved that the share application money is bogus and not travelled through bank account. It is a fact that these companies are duly registered under the Companies Act, 1956 and still active except one company i.e. Navlakha Agrex Pvt. Ltd., which is Amalgamated. As decided in sister concern case above 2019 (1) TMI 681 - ITAT MUMBAI referring to details proved that the share applicant money received is genuine and explained in the absence of any contrary material brought in by Revenue. Hence, we are of the view that the CIT(A) has rightly quashed the reassessment and also deleted the addition on merits - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act of ?7,50,00,000/- by treating Share Application Money as Unexplained Cash Credit.

Issue-wise Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act of ?7,50,00,000/- by treating Share Application Money as Unexplained Cash Credit:

The primary issue in this case revolves around the addition of ?7,50,00,000/- under Section 68 of the Income Tax Act, which pertains to unexplained cash credits. The assessee challenged the addition on the grounds that the Assessing Officer (AO) treated the Share Application Money as Unexplained Cash Credit based on third-party statements without any incriminating documents/materials found during the search action/proceedings. The AO did not rely on the seized materials and ignored the documents submitted by the assessee that were sufficient to establish the identity, capacity, and genuineness of the share applicants and transactions.

Facts and Proceedings:
- The assessee, a private limited company, filed its return of income declaring a total loss of ?42,067/-. The return was processed under Section 143(1) of the Act, accepting the returned income.
- The case was selected for scrutiny, and during assessment proceedings, the assessee furnished all required information for verification of the share application money received during the year.
- A search action was conducted under Section 132 of the Act, and the case was centralized with DCIT CC2(3), Mumbai. A notice under Section 153A was issued, and the assessee filed the return of income in response.
- The AO issued notices under Sections 142(1) and 143(2), and the assessee submitted necessary details, including documents proving the identity, capacity, and creditworthiness of the investors.
- Despite these submissions, the AO added the share application money of ?7,50,00,000/- under Section 68, deeming it unexplained cash credit.

Details Submitted by the Assessee:
- The assessee provided comprehensive documentation, including the names, addresses, PAN, copies of bank statements, audited balance sheets, profit and loss accounts of the share applicants, share allotment letters, share certificates, and Form No.2 filed with the ROC.
- The AO issued notices under Section 133(6) to the share applicants, but many did not respond or the notices were not served. Despite this, the assessee submitted further details like directors' details, shareholding patterns, and unsecured loans & advances.

Tribunal's Findings:
- The assessee's counsel argued that the case was covered by the decisions of the co-ordinate bench of the Tribunal in the assessee's sister concerns' cases, where similar issues were decided in favor of the assessee.
- The Tribunal noted that the AO's addition was primarily based on the statement of a third party (Shri Praveen Kumar Jain) without independently verifying the genuineness of the transactions.
- The Tribunal emphasized that the assessee had discharged the primary onus to prove the identity, capacity, and genuineness of the share applicants through substantial documentary evidence.
- The Tribunal referred to the decision in ITA No.2091/M/2018, where similar facts and issues were adjudicated, and the addition was deleted.

Conclusion:
The Tribunal concluded that the facts of the current case were materially similar to those in the sister concerns' cases, where the addition was deleted. Therefore, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition of ?7,50,00,000/-. The appeal of the assessee was partly allowed, and the legal issue regarding the addition without incriminating material was not considered necessary to decide.

Order Pronounced:
The appeal of the assessee was partly allowed, and the order was pronounced in the open court on 11.09.2020.