2015 (5) TMI 679 - AT - Income Tax

ITAT deletes unexplained cash credits under sec 68, emphasizes genuineness of transactions.

Jai Durga Trade Link Pvt. Ltd. Versus ITO, Ward-4 (2), Ahmedabad

The Income Tax Appellate Tribunal (ITAT) allowed the appeal of the assessee by deleting the addition of Rs. 32,50,000/- as unexplained cash credits under ... Unexplained cash credits u/s.68 - addition made by the AO being an amounts of share capital and share premium - Held that:- In the instant case there is contradiction between the statement deposed by the directors of the alleged three investment companies and the audited statement, bank accounts, confirmations and share application forms executed by the three investor companies. In the above circumstances, it is to be adjudicated that which is to be believed, the fact revealed by various documents or the facts claimed by three deponents without any corroborative evidences. We find that the Honourable Bombay High Court in the case of ACIT Vs. Miss Lata Mangeshkar [1973 (6) TMI 13 - BOMBAY High Court] held that once the testimony of the witness is unreliable, then the addition on the basis of such testimony cannot be made. In view of the above decision in our considered view the facts disclosed by the documentary evidences on record cannot be ignored merely on the basis of unsubstantiated statement of the directors. Further, we find that the identities of the three investors in the shares of the assessee company are not in dispute and the investment were made through their bank accounts is also established from their bank statements as well as their audited financial statements. The Honourable Supreme Court in the case of CIT versus Lovely Exports (P) Ltd.S.L.P. (CIVIL)[2008 (1) TMI 575 - SUPREME COURT OF INDIA] wherein held that if the share application money is received by the assessee-company from alleged bogus shareholders, whose names are given to the AO, then the department is free to proceed to reopen their individual assessments in accordance with law. Thus addition made in the instant case cannot be sustained. - Decided in favour of assessee. Issues Involved:1. Whether the addition of Rs. 32,50,000/- made by the AO as unexplained cash credits under section 68 of the Income Tax Act, 1961 was justified.Issue-wise Detailed Analysis:1. Addition of Rs. 32,50,000/- as Unexplained Cash Credits under Section 68:Facts of the Case:- The assessee-company was incorporated on 6.3.2007 and introduced share capital of Rs. 7,50,000/- and share premium of Rs. 26,00,000/- in March 2007.- The investments were made by Ankush Finstock Ltd., Marrot Stock Holding (P) Ltd., and Step Securities P. Ltd.- During assessment, the AO issued summons under section 131 to verify the identity, creditworthiness, and genuineness of the transactions.Statements from Directors:- Directors of the investor companies, including Shri Bharatbhai Manubhai Shah, Shri Desai Pintoo Motibhai, and Shri Pankaj Manubhai Shah, denied making any investments in the assessee-company in their statements under oath.- They claimed the transactions were accommodation entries for commission and no actual investment was made.Assessee's Defense:- The assessee provided share application forms, bank statements, and income tax returns of the investors.- The assessee argued that the statements were made under duress and were contradictory to earlier confirmations.- The assessee requested cross-examination, which was granted, but the directors stood by their statements.AO's Findings:- The AO concluded that the share capital and premium were not genuine investments but accommodation entries to launder unaccounted funds.- The AO added Rs. 32,50,000/- as unexplained cash credits under section 68.CIT(A)'s Decision:- The CIT(A) upheld the AO's addition, stating that the assessee failed to establish the genuineness of the transactions and the creditworthiness of the investors.Assessee's Arguments Before ITAT:- The assessee reiterated that it had discharged its burden by providing necessary documents.- The AR argued that the AO's reliance on statements was misplaced as they were unsubstantiated and contradicted by documentary evidence.- The AR cited various judicial precedents, including CIT Vs. Lovely Exports Pvt. Ltd., to support the contention that once the identity of investors is proven, no addition can be made under section 68.ITAT's Analysis:- The ITAT examined the documentary evidence, including balance sheets and bank statements of the investor companies, which showed the investments.- The ITAT found the statements of the directors unreliable and unsubstantiated by any corroborative evidence.- The ITAT noted that the identity of the investors and the fact that investments were made through banking channels were established.ITAT's Conclusion:- The ITAT held that the addition of Rs. 32,50,000/- could not be sustained based on unreliable statements of the directors.- The ITAT deleted the addition, emphasizing that the documentary evidence provided by the assessee was sufficient to establish the genuineness of the transactions.- The appeal of the assessee was allowed.Order:- The ITAT ordered the deletion of the addition of Rs. 32,50,000/- and allowed the appeal of the assessee.Pronouncement:- The order was pronounced on 29th April 2015 at Ahmedabad.