2022 (9) TMI 1025 - AT - Income Tax

Addition u/s 68 - genuineness of share application / share premium received - declaration made IDS-2016 by director s / family members - CIT- deleted the addition - AR submits that the investment made by the assessee-company was undisclosed income of various directors / family-members of the directors of the assessee-company, which has been accepted by them in IDS-2016 on which due penalty has been paid, once the amount has been taxed, same cannot be taxed in the hands of assessee again - HELD THAT - We find that Hon'ble jurisdictional High Court in the case of M.R. Shah Logistic (P) Ltd. 2018 (8) TMI 1434 - GUJARAT HIGH COURT on almost similar set of facts and on similar question of law allowed the appeal of that assessee by holding that where Assessing Officer held share application money received by assessee-firm from (GL) as undisclosed by the said (GL) under IDS-2016, which was accepted by the Department, pursuant to which that assessee had paid penalty, assessing the same amount in the hands of assessee would amount to double taxation and deleted the entire addition. As in similar case in Peninsula Builders P Ltd, Shree Laxmi Fashions Private Limited and in Prime Embroideries Private Limited similar additions were made by assessing officer on account of share premium. Later on their directors accepted by filing application under IDS-16 and paid due tax of their own money, which was also infused through same modus operandi, and the ld CIT(A) deleted the addition, but no appeal is filed in such cases. We find that no contrary material is filed or shown to us by ld SR DR for the revenue that any further appeal is filed in all such similar cases by the revenue. Thus, in our considered view, the revenue cannot treat the similar situated assessee on similar additions in different way. So far as the objection of ld Sr DR for the revenue is concerned that undisclosed income declared in IDS-16, not to affect finality of completed assessment. We may note that the appeal is continuation of its original proceedings and the assessee cannot be deprived of the benefit, if it was available at the time of assessment, if the appeal of assessee is pending adjudication either at first or second appeal stage. We find that once the undisclosed income declared under IDS-2016 have been accepted by the Department including accepting the fact that ultimate amount was taxed, same therefore, cannot be taxed in the hands of assessee-company again. Thus, with these additional observation, we affirm the order of Ld. CIT(A).Grounds of appeal raised by the revenue are dismissed.

Issues Involved:

1. Deletion of addition made by the Assessing Officer under Section 68 for unexplained cash credits.
2. Justification of reliance on CBDT Circular No. 29 of 2016 by the CIT(A).
3. Impact of Income Declaration Scheme (IDS) 2016 on the assessment.
4. Allegation of bogus share application money.
5. Adequacy of evidence provided by the assessee regarding the source of share application money.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made by the Assessing Officer under Section 68 for Unexplained Cash Credits:

The Assessing Officer (AO) added Rs. 2.50 crores to the assessee's income under Section 68 of the Income Tax Act, treating the share premium and share application money received from fifteen companies as unexplained cash credits. The AO concluded that these companies were paper-based entities without genuine creditworthiness, as they were not found at their given addresses, and the transactions were mere orchestrated arrangements. The AO also noted that the funds were routed through banking channels in a pattern that suggested temporary creditworthiness for accommodation entries.

The CIT(A) deleted this addition, accepting the assessee's claim that the directors and their family members had declared this amount as their undisclosed income under the IDS 2016. The CIT(A) concluded that the investment in the share capital/premium was made by the directors/family members through these companies, and this was accepted by the Income Tax Department under IDS 2016.

2. Justification of Reliance on CBDT Circular No. 29 of 2016 by the CIT(A):

The CIT(A) relied on CBDT Circular No. 29 of 2016, which clarified that undisclosed income declared under IDS 2016 could be used to explain transactions of subsequent years. The CIT(A) held that the declaration made by the directors/family members under IDS 2016 covered the entire addition made by the AO under Section 68. The CIT(A) emphasized that taxing the same amount again in the hands of the assessee would result in double taxation, which is not permissible.

3. Impact of Income Declaration Scheme (IDS) 2016 on the Assessment:

The directors and their family members of the assessee-company declared their undisclosed income under IDS 2016, which included the investment made in the assessee-company through the fifteen Kolkata-based companies. The declarations were accepted by the Principal Commissioners of Income Tax (PCIT-I and PCIT-II), Surat, and the necessary tax and penalty were paid. The CIT(A) held that this declaration under IDS 2016 provided a sufficient explanation for the source of the share capital/premium, thus covering the addition made by the AO under Section 68.

The Tribunal upheld the CIT(A)'s decision, noting that once the undisclosed income declared under IDS 2016 was accepted by the Department, the same amount could not be taxed again in the hands of the assessee-company.

4. Allegation of Bogus Share Application Money:

The AO alleged that the share application money received by the assessee from the fifteen companies was bogus, as these companies were merely paper entities without genuine creditworthiness. The AO's inquiry revealed that these companies were not found at their given addresses, and the funds were routed through banking channels in a manner that suggested temporary creditworthiness for accommodation entries.

The CIT(A) rejected this allegation, accepting the assessee's claim that the investment was made by the directors/family members through these companies, and this was declared as their undisclosed income under IDS 2016. The Tribunal upheld the CIT(A)'s decision, noting that the declaration under IDS 2016 provided a sufficient explanation for the source of the share application money.

5. Adequacy of Evidence Provided by the Assessee Regarding the Source of Share Application Money:

The assessee provided various documents to prove the identity and creditworthiness of the investor companies, including share application forms, bank statements, PAN cards, income tax returns, and audit reports. The assessee also submitted that the directors/family members had declared the investment as their undisclosed income under IDS 2016, and this declaration was accepted by the Department.

The CIT(A) and the Tribunal found this evidence adequate, noting that the declaration under IDS 2016 provided a sufficient explanation for the source of the share application money. The Tribunal also noted that the Revenue had not disputed the payment of tax and penalty on the declared income under IDS 2016.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the addition made by the AO under Section 68. The Tribunal held that the declaration of undisclosed income under IDS 2016 by the directors/family members of the assessee-company provided a sufficient explanation for the source of the share application money, and taxing the same amount again in the hands of the assessee-company would result in double taxation, which is not permissible.

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