2021 (8) TMI 707 - AT - Income Tax

Addition u/s 68 - Addition made on account of receipt of share application money - No cross examination of parties provided - CIT-A deleted the addition - HELD THAT - As pointed out that from the audited financial statements of the investor companies, no where the name of Shri Shirish C Shah appears. More so, when the AO in order to investigate the transactions, had issued notices u/s 133(6) of the Act and summons u/s 131 which were duly responded directly by the investor companies before him. In any case, no opportunity of cross examination of Shri Shirish C Shah was even provided to the assessee by the ld AO. It is the primary duty on the part of the ld AO to provide cross examination of parties, in case, if he desires to place reliance on any statement against the assessee, in order to controvert the same. Admittedly, Shri Shirish C Shah becomes the witness of the department as it is the ld AO who is placing reliance on the statement given by him during his search proceedings. DR merely reiterated the observations of the ld AO that the directors of investor companies did not appear in person before him in response to the summons issued u/s 131 of the Act to them, eventhough the relevant details called for in the summons, were duly provided by them. Only this fact of non-appearance of those directors of investor companies in person, had drawn the ld AO to treat the receipt of share application monies as accommodation entries and thereby making addition u/s 68 in the hands of the assessee company (i.e recipient company). In view of the aforesaid observations, these arguments of the ld DR would not come to the rescue of the revenue. Accordingly, we hold that the CIT-A had rightly deleted the addition made u/s 68 in the hands of the assessee company, on which we do not find any infirmity. The ground raised by the revenue is dismissed.

Summary

Issues Involved:
1. Justification of deletion of addition made on account of receipt of share application money amounting to ?4 crores.

Issue-wise Detailed Analysis:

1. Justification of Deletion of Addition on Account of Share Application Money:
The primary issue in this appeal is whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the addition of ?4 crores made by the Assessing Officer (AO) under section 68 of the Income Tax Act, 1961. The AO had alleged that the share application money received by the assessee, a private limited company engaged in wholesale trading of textile fabrics, was not genuine and was merely accommodation entries provided by certain entities controlled by Shri Shirish C Shah.

a. Evidence Submitted by Assessee:
The assessee received share application money from three entities: Aadhar Ventures (I) Ltd, Speciality Papers Ltd, and Twenty First Century (I) Ltd. To substantiate the identity, creditworthiness, and genuineness of the transactions, the assessee submitted various documents including:
- Audited balance sheets showing sufficient share capital and revenue.
- PAN details and share application forms.
- Board resolutions for making investments.
- Bank statements highlighting the investment transactions.
- Confirmations from the investor companies.
- Acknowledgements of filing of income returns.
- Certificates from the Registrar of Companies.

b. AO's Investigation:
The AO relied on information from the Investigation Wing and statements made by Shri Shirish C Shah, alleging that the transactions were accommodation entries. The AO issued notices under section 133(6) and summons under section 131, which were responded to by the investor companies with the necessary documents. However, the directors of these companies did not appear in person before the AO.

c. CIT(A)'s Findings:
The CIT(A) observed that the assessee had provided all necessary evidence to prove the identity, creditworthiness, and genuineness of the transactions. The CIT(A) noted that the AO had not drawn any adverse inference from the documents submitted by the investor companies. The CIT(A) also highlighted that merely because the directors did not appear in person, an adverse inference could not be drawn. Furthermore, the AO did not take any action against the investor companies for non-appearance, which weakened the AO's stance.

d. Tribunal's Conclusion:
The Tribunal upheld the CIT(A)'s decision, stating that the assessee had discharged its onus under section 68 by providing sufficient evidence. The Tribunal emphasized that the AO had not brought any material evidence to prove that the share application money was not genuine. The Tribunal also noted that the investor companies were widely held public limited companies with significant financial standing, making it improbable that they were involved in providing accommodation entries. The Tribunal concluded that reliance on the statement of Shri Shirish C Shah without providing the assessee an opportunity for cross-examination was not justified.

Final Judgment:
The Tribunal dismissed the appeal of the revenue, affirming the CIT(A)'s decision to delete the addition of ?4 crores made under section 68 of the Income Tax Act. The Tribunal found no infirmity in the CIT(A)'s order and ruled in favor of the assessee.