2022 (2) TMI 32 - AT - Income Tax

Addition u/s 68 - unexplained cash credit in respect of share capital and share premium received - HELD THAT - We note that if at all these investments are made by bogus investors, then the AO is free to proceed against those investors as the assessee has provided all the details such as addresses, PAN numbers etc. of the investors to the AO and thus no addition can be made under section 68 of the Act in the hands of the assessee as has been held by the Hon ble Apex Court in the case of CIT vs. Lovely Exports Pvt. Ltd 2008 (1) TMI 575 - SC ORDER which has been followed in the case of CIT vs. Gagandeep Infrastructure Pvt. Ltd 2017 (3) TMI 1263 - BOMBAY HIGH COURT and CIT vs. Orchid Industries Pvt. Ltd. 2017 (7) TMI 613 - BOMBAY HIGH COURT We also note that the assessee has specifically requested the AO to provide cross examination to the assessee which has not been provided and on this count also the assessee finds support from the decision of Apex Court in the case of Andaman Timber Industries 2015 (10) TMI 442 - SUPREME COURT and Krishnachand Chellaram 1980 (9) TMI 3 - SUPREME COURT wherein it has been held that additions can not be made without giving an opportunity of cross examination to the assessee - In view of these facts and the ratio laid down by the various judicial forums, we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition as the assessee has proved all three ingredients of section 68 of the Act i.e. identity, creditworthiness of the investors and genuineness of the transactions. The ground no. 1 is allowed. Addition u/s 68 in respect of share application/unsecured loans received from M/s. Shyam Alcohol Chemical Ltd. - We note that the assessee has filed the ITRs, confirmations and bank statements from the lender/investor. The assessee has also filed before the AO the letter informing that the entire share application money has been paid subsequently. We also note that the lender has responded to the notice issued under section 133(6) of the Act by filing various documents therewith such as balance sheet, bank statements etc. beside filing affidavit of Shri Vipul Vidur Bhatt and thus confirmed the loan transactions. In our opinion, the issue decided in ground No.1 above is quite similar to the issue raised in the second ground by the assessee and therefore, our finding in ground No.1 would, mutatis mutandis, apply to this ground as well. Accordingly, we hold that assessee has proved the identity, creditworthiness of the lenders/investors and genuineness of the transactions. Resultantly, the order of Ld. CIT(A) is set aside and AO is directed to delete the addition.

Summary

Issues Involved:

1. Addition of ?53,00,000/- under Section 68 being share capital and share premium received from M/s Sampada Chemicals Ltd and M/s P. Saji Textiles Ltd.
2. Addition of ?4,66,50,000/- under Section 68 being share-application/loan received from M/s Shyam Alcohol & Chemicals Ltd.

Issue-wise Detailed Analysis:

1. Addition of ?53,00,000/- under Section 68:

The assessee challenged the addition of ?53,00,000/- made by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] under Section 68 of the Income Tax Act as unexplained cash credit in respect of share capital and share premium received from M/s Sampada Chemicals Ltd. and M/s P. Saji Textiles Ltd. The AO based the addition on the statement of Vipul Vidur Bhatt, who during a search admitted to providing bogus accommodation entries. The assessee provided various documentary evidences, including ITRs, confirmations from investors, and bank statements, which the AO disregarded.

The CIT(A) upheld the AO's decision, stating that the investors did not offer a satisfactory explanation about the nature and source of the credited sums, as required by the first proviso to Section 68. The CIT(A) emphasized that the explanation must come from the person in whose name the money is credited.

The assessee argued that the statement of Vipul Vidur Bhatt was retracted and that the AO did not provide an opportunity for cross-examination, violating principles of natural justice. The assessee cited several judicial precedents, including CIT vs. Lovely Exports Pvt. Ltd. and Andaman Timber Industries vs. CCE, to support the argument that additions based on retracted statements and without cross-examination are invalid.

The Tribunal found that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions. It noted that the AO and CIT(A) did not point out any deficiencies in the evidences provided. The Tribunal also highlighted that the AO could proceed against the investors if the investments were found to be bogus, as per the decision in CIT vs. Lovely Exports Pvt. Ltd. Consequently, the Tribunal directed the AO to delete the addition of ?53,00,000/-.

2. Addition of ?4,66,50,000/- under Section 68:

The assessee also contested the addition of ?4,66,50,000/- made by the AO and confirmed by the CIT(A) under Section 68, pertaining to share application/unsecured loans received from M/s Shyam Alcohol & Chemicals Ltd. The AO noted that the assessee received unsecured loans from this entity, controlled by Vipul Vidur Bhatt, who admitted to providing bogus accommodation entries. The AO treated the loans as non-genuine and added the amount as unexplained cash credit.

The CIT(A) not only confirmed the addition but also enhanced it by ?90,00,000/- after consolidating the Share Application A/c and Loan A/c of M/s Shyam Alcohol & Chemicals Ltd. The CIT(A) reasoned that the cash credits in the consolidated ledger corresponded to identical credits in the assessee's books.

The assessee argued that the loans were genuine, supported by documentary evidence, and that the statement of Vipul Vidur Bhatt was retracted. The assessee also cited judicial precedents to argue that additions based on retracted statements and without cross-examination are invalid.

The Tribunal observed that the facts of this issue were similar to the first issue, with the difference being the nature of the credit (share capital vs. unsecured loans). The Tribunal noted that the assessee provided sufficient evidence, including ITRs, confirmations, and bank statements, to prove the identity, creditworthiness, and genuineness of the transactions. The Tribunal concluded that the assessee had met the requirements of Section 68 and directed the AO to delete the addition of ?4,66,50,000/-.

Conclusion:

The Tribunal allowed the appeal of the assessee, directing the AO to delete the additions of ?53,00,000/- and ?4,66,50,000/- under Section 68. The Tribunal emphasized the importance of providing cross-examination and the invalidity of additions based on retracted statements without corroborative evidence.