Tribunal overturns tax assessment, emphasizes burden of proof

Shakti Hardware Collections Pvt. Ltd. Versus The Dy. Commissioner of Income Tax, CC-22, Mumbai

Shakti Hardware Collections Pvt. Ltd. Versus The Dy. Commissioner of Income Tax, CC-22, Mumbai - TMI Issues Involved:
1. Addition of share application money as unexplained under Section 68 of the Income Tax Act, 1961.
2. Confirmation of commission paid for the share application money as unexplained under Section 68 of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Addition of Share Application Money as Unexplained Under Section 68:

The assessee received share application money from ten parties, which the Assessing Officer (AO) treated as unexplained under Section 68 of the Income Tax Act, 1961. The AO issued summons under Section 131, which returned unserved. Consequently, the AO added the share application money of Rs. 2.37 crore as unexplained by observing that the parties were either not available or admitted to providing accommodation entries. The AO concluded that the assessee utilized its own funds in the guise of share application money. The CIT(A) confirmed the AO's action, noting that the assessee failed to produce the parties and that the companies did not exist at the provided addresses. The CIT(A) emphasized that the identity, creditworthiness, and genuineness of the transactions were not established, and the companies were found to be non-functional or providing accommodation entries. The CIT(A) relied on various judicial precedents to support the decision, including the principle that mere furnishing of documents like PAN or bank statements does not discharge the burden under Section 68.

The assessee argued that all necessary documents, including bank statements, IT returns, and other relevant details, were provided to the AO and CIT(A). The assessee contended that the statements of certain directors admitting to accommodation entries were not confronted with the assessee. The assessee maintained that the proper records of share application, such as share application forms, board resolutions, and bank statements, were submitted, and the AO did not deny this fact.

The Tribunal noted that there was ample evidence to support the assessee's claim that the share application money was genuine. The Tribunal found that the AO's approach was erroneous and based on suspicion rather than proof. The Tribunal emphasized that the identity of the investors and the payment through banking channels were established, and the burden of proving the genuineness of the investors' capacity lies with the Department. The Tribunal cited the decision of the Hon'ble Bombay High Court in CIT vs. Gagandeep Infrastructure Pvt. Ltd. and CIT vs. Orchid Industries Pvt. Ltd., which held that the assessee's duty does not cease by merely furnishing names and addresses. The Tribunal concluded that the addition under Section 68 was not justified and deleted the addition of Rs. 2.37 crore.

2. Confirmation of Commission Paid for Share Application Money as Unexplained:

The AO added Rs. 2,37,000 as commission paid for obtaining the share application money, treating it as unexplained under Section 68. The CIT(A) confirmed this addition, reasoning that since the share application money was treated as unexplained, the commission paid for obtaining it also lacked credibility.

The Tribunal, following the deletion of the addition of share application money, also deleted the addition of the commission paid. The Tribunal held that since the primary addition was not sustainable, the related commission payment could not be treated as unexplained.

Conclusion:

The Tribunal allowed the appeal of the assessee, deleting the addition of Rs. 2.37 crore as unexplained share application money and the related commission paid. The Tribunal emphasized the importance of concrete evidence over suspicion and upheld the principles laid down by higher judicial authorities. The decision reaffirmed that the burden of proving the genuineness of transactions lies with the Department, and mere suspicion cannot substitute for proof.