2022 (11) TMI 911 - AT - Income Tax

Addition u/s 68 - assessee has failed to prove identity, creditworthiness of the investors and genuineness of the transactions - CIT-A deleted the addition - HELD THAT - Assessee as an approved vendor of NHPC, UNITECH, TATA Wipro, Power Grid, DLF etc. We note that assessee has filed all the details before the AO containing the detailed particulars of investors, their addresses, PAN NOs. and amounts invested by these respective companies besides filing of details of cross-share holdings and common directors. We also note that the CIT(A) called for remand report from the AO on some issues on which the AO has having some wrong notions which were apparently wrong and contrary to the facts on records. We further observe from the remand report furnished by the AO during appellate proceedings before CIT(A) after looking into all these evidences/documents sated that all these evidences were before the AO in the original assessment proceedings and did not require any further investigation into the matter. CIT(A) only after having received this remand report and after considering all the evidences on record and also capacity of the investors who were having sufficient own sources, deleted the addition. Under these facts and circumstances we do not find any infirmity in the order of Ld. CIT(A) and accordingly grounds raised by the revenue are dismissed.

Issues Involved:
1. Deletion of addition of Rs. 20,20,00,000/- under Section 68 of the Income Tax Act.
2. Failure to prove identity, creditworthiness of the investors, and genuineness of the transactions.

Detailed Analysis:

1. Deletion of Addition under Section 68:
The primary issue raised by the revenue was against the deletion of the addition of Rs. 20,20,00,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act. This addition was made on the grounds that the assessee failed to prove the identity, creditworthiness of the investors, and genuineness of the transactions. The AO observed that the assessee received share application money from three companies: Iota Software & Services (P) Ltd., Paras Ispat Ltd., and Parashnath Re-Rolling Mills Ltd. The AO issued notices and called for various details, including bank statements, books of accounts, and returns of income of the investors and their directors. Despite the documents provided, the AO concluded that the transactions were sham, citing reasons such as lack of regular business transactions with the investors and the assessee not availing the opportunity for cross-examination.

2. Appellate Proceedings and Findings:
In the appellate proceedings, the Commissioner of Income Tax (Appeals) [CIT(A)] allowed the appeal of the assessee. The CIT(A) examined the detailed submissions and evidences provided by the assessee, which included documents proving the identity, creditworthiness, and genuineness of the transactions. The CIT(A) found that the share applicants were group companies with common directors and cross-holdings. The CIT(A) noted that the transactions were made through proper banking channels and the investors had sufficient owned funds. The CIT(A) observed that the AO did not make any independent inquiry or issue notices under Sections 131 or 133(6) to the directors of the applicant companies. The AO's allegations were deemed vague and unsupported by substantial evidence.

3. Examination of Share Applicants:
The CIT(A) provided a detailed examination of each share applicant:
- Iota Software & Services (P) Ltd.: The company had common directors with the appellant company and sufficient reserves and surplus. The share application was made through proper banking channels.
- Paras Ispat Ltd.: Similar to Iota, this company also had common directors and sufficient financial resources. The transactions were made through proper banking channels.
- Parashnath Re-Rolling Mills Ltd.: This company had common directors and sufficient financial resources. The share application was made through proper banking channels.

4. Genuineness of Transactions:
The CIT(A) concluded that the share capital raised was for business expansion, which was supported by the significant increase in the appellant's turnover. The CIT(A) found that the AO's failure to produce the directors for cross-examination was not a valid ground for rejecting the assessee's explanation. The CIT(A) relied on various judicial decisions, including those of the Supreme Court and High Courts, which reiterated that if the assessee proves the identity, genuineness, and creditworthiness of the transactions, the burden shifts to the revenue to prove otherwise.

5. Judicial Precedents:
The CIT(A) cited several judicial precedents to support the decision, including:
- PCIT vs. Paradise Inland Shipping (P.) Ltd.
- PCIT vs. Himachal Fibres Ltd.
- S.K. Bothra & Sons HUF vs. ITO
- CIT vs. Lovely Exports

6. Revenue's Arguments:
The revenue argued that the assessee failed to furnish necessary evidence to prove the authenticity, genuineness, and creditworthiness of the investors. The revenue also pointed out that the remand report from the AO was sketchy and did not discuss the examination of the evidences/details furnished by the assessee during the remand proceedings.

7. Assessee's Counter Arguments:
The assessee countered by stating that all evidences/details were examined in detail by both the AO and the CIT(A). The assessee highlighted that the company was engaged in substantial business activities and had provided all necessary details, including the identity, addresses, PAN numbers, and cross-shareholdings of the investors. The assessee argued that the AO's conclusions were based on flimsy grounds and without specific defects in the documents provided.

8. Tribunal's Findings:
The Tribunal found that the assessee had received share application money from group companies with common directors and cross-shareholdings. The Tribunal observed that the AO's allegations were negated by the detailed examination and findings of the CIT(A). The Tribunal noted that the assessee had provided all necessary details and that the CIT(A) had called for a remand report from the AO, who confirmed that all evidences were before him during the original assessment proceedings. The Tribunal concluded that the CIT(A) had rightly deleted the addition after considering all evidences and circumstances.

Conclusion:
The Tribunal upheld the order of the CIT(A) and dismissed the appeal of the revenue, concluding that the addition made by the AO under Section 68 was unjustified and based on mere surmises and conjectures. The Tribunal emphasized that the assessee had proved the identity, creditworthiness, and genuineness of the transactions, and the burden had shifted to the revenue to disprove the materials placed before them. The appeal of the revenue was dismissed.

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