2025 (3) TMI 1462 - AT - Income Tax

Addition u/s 68 - unexplained cash credits in the form of share application money - addition of commission paid for taking accommodation entries - CIT(A) deleted addition - HELD THAT - In the case of PCIT vs. Narang Construction and Finance Pvt. Ltd. 2018 (8) TMI 1552 - DELHI HIGH COURT relied upon the judgment delivered by the Hon ble Supreme Court Lovely Exports 2008 (1) TMI 575 - SC ORDER held at the relevant extracts have been reproduced in the order of the AO as well as the CIT(A) which disclosed that the share applicants were entering into proper commercial transactions and were not per se forged bogus or sham investors. In the case Lovely Exports 2008 (1) TMI 575 - SC ORDER as mentioned hereinabove the Hon ble Supreme Court held that if the share application money is received by the assessee company from alleged bogus shareholders whose name is given to the Ld. AO then the Department is free to reopen individual assessment in accordance with law. After hearing both and bare perusal of the impugned order CIT(A) rightly observed that the assessee / appellant company furnished all necessary documents to prove the genuineness of the transaction and creditworthiness of the investor s companies we find material substance in the submissions advanced on behalf of the assessee / respondent. There is no any ground exists to interfere with the finding given by the Ld. CIT(A) and hence the appeal of the revenue liable to be dismissed devoid of any substance. Appeal of revenue is hereby dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

1. Whether the Commissioner of Income Tax (Appeals) [CIT(A)] erred in deleting the addition of Rs. 2,56,44,000 made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, concerning unexplained cash credits in the form of share application money.

2. Whether the CIT(A) erred in deleting the addition of Rs. 5,12,880 made by the AO as commission paid for taking accommodation entries.

ISSUE-WISE DETAILED ANALYSIS

1. Addition under Section 68 of the Income Tax Act, 1961

Relevant Legal Framework and Precedents

Section 68 of the Income Tax Act, 1961, addresses unexplained cash credits. The burden of proof lies on the assessee to establish the identity, creditworthiness, and genuineness of the transactions. The court referenced several precedents, including CIT vs. Lovely Exports, CIT vs. Victor Electodes Ltd., and CIT vs. Divine Leasing and Finance Ltd., which emphasize that once the assessee provides adequate evidence, the burden shifts to the revenue to disprove the evidence.

Court's Interpretation and Reasoning

The Tribunal noted that the CIT(A) had accepted the explanations and documents provided by the assessee, which included confirmations, bank statements, income tax returns, and other relevant documents from the investor companies. The CIT(A) concluded that the assessee had discharged its burden of proof regarding the identity, creditworthiness, and genuineness of the transactions.

Key Evidence and Findings

The assessee submitted various documents, including confirmations from investor companies, bank statements, income tax returns, and resolutions authorizing subscriptions to equity shares. The CIT(A) found these documents sufficient to establish the genuineness of the transactions and the creditworthiness of the investors.

Application of Law to Facts

The Tribunal applied the principles established in precedents, highlighting that the revenue had not provided any adverse evidence to counter the documents submitted by the assessee. The Tribunal emphasized that the mere inability to produce directors of the investor companies does not invalidate the transactions when sufficient documentary evidence is provided.

Treatment of Competing Arguments

The revenue argued that the companies were shell entities and that the transactions were not genuine. However, the Tribunal found that the AO's conclusions were based on suspicion rather than concrete evidence. The Tribunal noted that the AO did not pursue further inquiries or present any material evidence to substantiate the claims of accommodation entries.

Conclusions

The Tribunal upheld the CIT(A)'s decision, concluding that the assessee had adequately demonstrated the identity, creditworthiness, and genuineness of the transactions. The addition under Section 68 was not justified in the absence of contrary evidence from the revenue.

2. Addition for Commission Paid for Accommodation Entries

Relevant Legal Framework and Precedents

The addition of Rs. 5,12,880 was made by the AO as commission paid for accommodation entries. The legal framework requires the revenue to provide evidence of such transactions being sham or bogus.

Court's Interpretation and Reasoning

The Tribunal found that the CIT(A) had rightly deleted the addition, as the AO failed to present evidence supporting the claim that the commission was paid for accommodation entries.

Key Evidence and Findings

The CIT(A) relied on the absence of any concrete evidence from the AO to support the claim of accommodation entries. The Tribunal noted that the AO's conclusions were speculative and not backed by any factual findings.

Application of Law to Facts

The Tribunal applied the principle that the revenue bears the burden of proving that a transaction is not genuine. In this case, the AO did not meet this burden, leading to the deletion of the addition by the CIT(A).

Treatment of Competing Arguments

The revenue's arguments were based on the assumption of accommodation entries without providing concrete evidence. The Tribunal found that the CIT(A) had correctly assessed the lack of evidence and deleted the addition.

Conclusions

The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 5,12,880, finding no substantive evidence to support the AO's claim of commission for accommodation entries.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning

The Tribunal noted, "The observations of the AO about the status of company and that the identity, capacity to advance money and genuineness of the transactions were not proved by the appellant is not based on any material and without appreciating the material filed on record."

Core Principles Established

The judgment reinforces the principle that the burden of proof under Section 68 initially lies with the assessee, but once adequate evidence is provided, the burden shifts to the revenue to disprove the evidence. Mere suspicion or inability to produce directors does not suffice to justify additions under Section 68.

Final Determinations on Each Issue

The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to delete the additions of Rs. 2,56,44,000 under Section 68 and Rs. 5,12,880 as commission for accommodation entries. The Tribunal found no substantive evidence to support the AO's claims and emphasized the sufficiency of the documentary evidence provided by the assessee.