2015 (12) TMI 1330 - AT - Income Tax

Tribunal affirms CIT(A) decision on share application money, emphasizes evidence in tax cases

The Tribunal upheld the CIT(A)'s decision to delete the additions made by the AO, concluding that the assessee had satisfactorily proven the identity, ... Addition u/s 68 - assessment u/s 153A - CIT(A) deleted the addition - Held that:- Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd. [2008 (1) TMI 575 - SUPREME COURT OF INDIA] has clearly laid down the law that once the assessee has given the complete details and the information of the investors who have made investments in the share capital of the company and proved identify then no addition can be made in the hands of the assessee company and in respect of such investments the department should proceed against the individual investor. In the case in hand also, the requisite details, proof, confirmation, evidences etc. are produced. The ratio of the decision of the Hon'ble Supreme Court is directly applicable on the facts of the case. In view of the above discussion of the matter, we do not find any infirmity in the factual finding given by the CIT(A) after duly appreciation of evidence on the file and the same is accordingly upheld. - Decided against revenue Issues Involved:1. Legitimacy of share application money received by the assessee.2. Evidentiary value of statements made by directors and third parties.3. Applicability of Section 68 of the Income Tax Act.4. Reliance on retracted statements and circumstantial evidence.5. Binding precedents and judicial decisions on similar issues.Detailed Analysis:1. Legitimacy of Share Application Money Received by the Assessee:The case involved a search and seizure operation under Section 132 of the Income Tax Act at the business premises of the assessee, revealing that the assessee and seven other companies were engaged in investment activities. The Assessing Officer (AO) treated the investment made by these companies as undisclosed income under Section 68 of the I.T. Act, citing failure to prove the identity, creditworthiness, and genuineness of the transactions. The CIT(A) observed that the assessee had submitted all necessary documents to establish the identity, creditworthiness, and genuineness of the transactions, and no incriminating documents were found during the search. The CIT(A) deleted the additions made by the AO, relying on the Supreme Court's decision in Lovely Exports Pvt. Ltd.2. Evidentiary Value of Statements Made by Directors and Third Parties:During the survey, statements from Shri Jose Mathew and Shri Ajay Kumar were recorded, indicating that the share application money was obtained by paying cash in lieu of cheques. However, both individuals later retracted their statements. The AO considered these statements as having evidentiary value even after retraction. The CIT(A) and the Tribunal noted that the statements were not corroborated by any documentary evidence and that the statements alone could not justify the additions. The Tribunal emphasized that the acceptance of unexplained income by Shri Ajay Kumar was based on information presented to him by the revenue, not on his personal knowledge.3. Applicability of Section 68 of the Income Tax Act:The AO invoked Section 68, treating the share application money as unexplained credits. The CIT(A) and the Tribunal held that the assessee had fulfilled the conditions of identity, creditworthiness, and genuineness of the transactions. The Tribunal highlighted that the assessee had provided all necessary details, including PAN numbers, bank statements, and confirmations from the investing companies, thereby satisfying the requirements under Section 68.4. Reliance on Retracted Statements and Circumstantial Evidence:The Tribunal noted that the retraction of statements by Shri Ajay Kumar and Shri Jose Mathew weakened the AO's case. The Tribunal also pointed out that no direct incriminating material was found during the search. The Tribunal referred to CBDT instructions and judicial precedents, emphasizing that additions based solely on retracted statements without corroborative evidence are not justified.5. Binding Precedents and Judicial Decisions on Similar Issues:The Tribunal relied on several judicial decisions, including those of the Bombay High Court and the Supreme Court, which held that once the assessee provides complete details and evidence regarding the investors, no addition can be made under Section 68. The Tribunal cited cases where similar additions were deleted, reinforcing the principle that the identity, creditworthiness, and genuineness of transactions must be established based on evidence, not merely on retracted statements or circumstantial evidence.Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the additions made by the AO, concluding that the assessee had satisfactorily proven the identity, creditworthiness, and genuineness of the share application money received. The appeals of the Revenue were dismissed, reinforcing the necessity of corroborative evidence for additions under Section 68 and the limited value of retracted statements.