2021 (7) TMI 1232 - AT - Income Tax

Addition u/s 68 - accommodation entry in the name of the Assessee - assessee was asked to produce parties who invested in the Assessee company to prove the genuineness of the transaction but he has shown its inability to produce - CIT-A deleted the addition - HELD THAT - There is no reference in the order of ld CIT(A) that how he has dealt the requirement of the ld AO of personal examination of the investor which the Assessee has reportedly failed to produce before the ld AO. CIT(A) has categorically mentioned that on account of independent enquiry, no adverse information came to the knowledge of the share holders that those are non- existent or do not have any capacity. He merely deleted the addition on the basis of the confirmation. He ignored the finding of the ld AO that there were a search in case of Shri S. K. Jain, where he confirmed that these accommodation entries and the assessee is one of the beneficiary therefore the genuineness of the transaction was completely shrouded. To examine the genuineness AO made several attempts for examination of the share holder which the Assessee either expressed inability or completely thwarted the investigation of the ld AO. CIT(A) did not address this issue at all. The onus u/s 68 is always swinging from Assessee to AO and AO to Assessee. In this case, now the onus rests with the assessee to produce the depositors before the ld AO who have invested in the share capital of the company. Assessee failed to do so. The assessee is a private limited company and therefore, it could not have given share subscription to the public at large. It has issued shares to the private parties which are known to the assessee only. It is not the case of the public limited company where the non production of the share holder could not have visualized in isolation against the Assessee. See NRA IRON STEEL PVT. LTD. 2019 (3) TMI 323 - SUPREME COURT and NDR PROMOTERS PVT. LTD. 2019 (1) TMI 1089 - DELHI HIGH COURT As the ld CIT(A) has failed to answer the several observation of the ld AO as stated above, we set aside the both the grounds of appeal of the ld AO back to the file of ld CIT(A) with a direction to the Assessee to produce the share holders before him - Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act of ?3 crores.
2. Deletion of ?3 lakhs on account of commission for obtaining accommodation entries.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68 of the Income Tax Act of ?3 crores:

The appeal was filed by the Assessing Officer (AO) against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] who deleted the addition of ?3 crores made under Section 68 of the Income Tax Act. The AO contended that the assessee failed to produce the parties who invested in the company to prove the genuineness of the transaction. Despite multiple notices and summons issued to the parties, none appeared, and the assessee expressed inability to produce them. The AO concluded that the transactions were bogus based on the search conducted on Mr. S.K. Jain, revealing that the assessee was a beneficiary of accommodation entries.

The CIT(A) deleted the addition, stating that the assessee provided sufficient documentary evidence, including share application forms, confirmations, PAN details, bank statements, and balance sheets of the investor companies. The CIT(A) noted that the AO's independent enquiry did not reveal any adverse information about the shareholders' existence or capacity to invest. The CIT(A) relied on the Supreme Court's judgment in CIT vs. Lovely Export, which held that if the share application money is received from alleged bogus shareholders whose names are given to the AO, the addition cannot be made in the hands of the assessee.

However, the Tribunal found that the CIT(A) did not address the AO's requirement for personal examination of the investors, which the assessee failed to comply with. The Tribunal emphasized that the onus under Section 68 shifts between the assessee and the AO and that the assessee, a private limited company, should have been able to produce the shareholders. The Tribunal cited the Supreme Court's judgment in NRA Iron and Steel Ltd and the Delhi High Court's judgment in NDR Promoters Ltd, which emphasize the necessity of proving the genuineness of transactions and the creditworthiness of investors.

The Tribunal set aside the CIT(A)'s order and directed the assessee to produce the shareholders before the CIT(A), who should either examine them himself or direct the AO to do so. The issue was remanded to the CIT(A) for fresh adjudication after giving the assessee a proper opportunity of hearing.

2. Deletion of ?3 lakhs on Account of Commission for Obtaining Accommodation Entries:

The AO had also made an addition of ?3 lakhs on account of commission for obtaining accommodation entries, which was deleted by the CIT(A). The Tribunal's order does not provide specific details or analysis regarding this addition. However, since the Tribunal remanded the main issue of ?3 crores back to the CIT(A) for fresh adjudication, it can be inferred that the related issue of ?3 lakhs commission would also be reconsidered during the reassessment process.

Conclusion:

The Tribunal allowed the appeal of the revenue for statistical purposes, remanding the matter back to the CIT(A) with directions to the assessee to produce the shareholders for examination. The CIT(A) was instructed to decide the issue afresh, considering the judgments of the Supreme Court and the Delhi High Court, and after providing a proper opportunity of hearing to the assessee. The order was pronounced in the open court on 27/07/2021.