2015 (4) TMI 501 - AT - Income Tax

Tribunal upholds CIT(A)'s decision, dismisses Revenue's appeal on undisclosed income additions.

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete additions of Rs. 20,00,000/-, Rs. 22,450/-, and Rs. 5,00,000/-. The ... Unaccounted money received as share application money - Held that:- CIT(A) deleted the addition - Held that:- Keeping in view of the findings given so Assessing Officer as well as the Ld. First Appellate Authority and the documentary finding by the assessee before us. We are of the considered view that Ld. First Appellate Authority has deleted the addition in dispute on the basis of various documentary evidence filed by the assessee before the Assessing Officer as well as before him. Hon’ble Supreme Court of India in the case of CIT VS. Export Lovely (2008 (1) TMI 575 - SUPREME COURT OF INDIA) which has confirmed the order of Hon’ble Delhi High Court has held that once the identity of the share holder have been established, even if there is a case of bogus share capital, it cannot be added in the hands of company unless any adverse evidence is not on record. Ld. First Appellate Authority has examined the documentary evidence filed by the Assessing Officer as well as before him and held that the assessee has provided confirmations from all the parties as well as various evidences to establish the genuineness of the transaction assessee has also relied upon the judgment of Nemi Chand Kothari Vs. CIT (2003 (9) TMI 62 - GAUHATI High Court ) wherein it has held that it is a certain law that the of the assessee is to prove the genuineness of transaction as well as the creditworthiness of the creditor must remain confined to the transactions which have taken place between the assessee and the creditor. It is not the business of assessee to find out the source of money of creditors. Similar observation has also been given in the case of Hon’ble Supreme Court of India in the case of Hastimal (1962 (12) TMI 60 - MADRAS HIGH COURT) and Daulatram Rawatmal (1972 (9) TMI 9 - SUPREME Court). Ld. First Appellate Authority has cited various decisions rendered by the Hon’ble Supreme Court of India as well as the Hon’ble Jurisdiction High Court in the impugned order and finally has held that the assessee has substantiated the transaction regarding share application money received by it was genuine transaction and the same were not accommodation entries he did not find any evidence collected by the AO which could prove otherwise and deleted the additions in dispute. - Decided in favour of assessee. Issues Involved:1. Deletion of addition of Rs. 20,00,000/- made under section 68 of the Income Tax Act regarding share application money.2. Deletion of addition of Rs. 22,450/- made as unexplained expenditure for commission on share application accommodation entries.3. Deletion of addition of Rs. 5,00,000/- made under section 68 of the Income Tax Act regarding share capital money received from an individual.Detailed Analysis:1. Deletion of Addition of Rs. 20,00,000/- under Section 68:The Revenue appealed against the deletion of Rs. 20,00,000/- added under section 68 by the Assessing Officer (AO). The AO argued that the share application money received by the assessee from three entities was merely accommodation entries, as these entities lacked creditworthiness and were not engaged in actual business activities. The AO based this on information from the Investigating Wing and statements from individuals associated with these entities. The assessee provided confirmations, copies of Income Tax Returns (ITRs), and bank statements to substantiate the transactions. However, the AO found these insufficient, emphasizing that the entities did not respond to summons and their addresses were used merely as post-boxes.The First Appellate Authority (CIT(A)) found that the assessee had discharged its initial onus by providing documentary evidence to prove the identity and creditworthiness of the investor companies. The CIT(A) criticized the AO for relying solely on the Investigation Wing's information without conducting independent verification. The CIT(A) cited several judicial pronouncements, including the Delhi High Court and Supreme Court rulings, which held that once the identity of the shareholders is established, even if the share capital is bogus, it cannot be added to the company's income unless adverse evidence is on record. The CIT(A) concluded that the AO did not provide any material evidence to prove that the share capital represented the assessee's undisclosed income and deleted the addition.2. Deletion of Addition of Rs. 22,450/- as Unexplained Expenditure:The AO added Rs. 22,450/- as unexplained expenditure for commission allegedly paid for arranging share application accommodation entries. The CIT(A) deleted this addition, reasoning that since the primary addition of Rs. 20,00,000/- was deleted, the question of commission on the same did not arise. The Tribunal upheld this view, agreeing that the deletion of the primary addition nullified the basis for the commission expenditure.3. Deletion of Addition of Rs. 5,00,000/- under Section 68:The AO added Rs. 5,00,000/- received from an individual (Sh. V. K. Angami) under section 68, arguing that the transaction was in cash and lacked immediate source substantiation. The assessee provided a confirmation and identity document for Sh. Angami, stating that he belonged to a Schedule Tribe of Nagaland, exempting him from income tax and hence, he had no PAN. The AO found this explanation insufficient, emphasizing the improbability of carrying such an amount in cash from Mizoram to Delhi and the lack of documentary evidence for Sh. Angami's financial status.The CIT(A) deleted this addition, noting that the assessee had provided sufficient documentary evidence to establish the identity and financial capacity of Sh. Angami. The CIT(A) reiterated that the AO did not provide any material evidence to prove that the amount represented the assessee's undisclosed income. The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee had discharged its initial onus and the AO failed to substantiate the addition with concrete evidence.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the additions of Rs. 20,00,000/-, Rs. 22,450/-, and Rs. 5,00,000/-. The Tribunal found that the assessee had provided sufficient documentary evidence to substantiate the transactions and the AO failed to provide material evidence to prove that the amounts represented the assessee's undisclosed income. The Tribunal emphasized the importance of independent verification and material evidence in such cases, aligning with judicial precedents.