2018 (8) TMI 980 - AT - Income Tax

Tribunal overturns tax additions, stresses thorough inquiries, identity verification, and genuine transactions.

M/s. Priyatam Plaschem Pvt. Ltd. Versus The Income Tax Officer, Circle-20 (1), New Delhi

M/s. Priyatam Plaschem Pvt. Ltd. Versus The Income Tax Officer, Circle-20 (1), New Delhi - [2018] 67 ITR (Trib) 649 Issues Involved:1. Addition of Rs. 6 crores under Section 68 of the I.T. Act.2. Addition of Rs. 12 lakhs on account of unexplained expenditure under Section 69C of the I.T. Act.Issue-wise Detailed Analysis:1. Addition of Rs. 6 crores under Section 68 of the I.T. Act:The assessee challenged the addition of Rs. 6 crores received as share application money from M/s. Mekastar Finlease P. Ltd. The Assessing Officer (A.O.) issued a notice under Section 133(6) to the investor, who confirmed the transaction and provided supporting documents, including ITR, bank statements, and balance sheets. However, the A.O. noted that the investor received funds from entities linked to the S.K. Jain group, known for providing accommodation entries. The A.O. considered the transaction as a sham and added Rs. 6 crores as unexplained under Section 68.The assessee argued that it had discharged its onus by providing sufficient evidence to prove the identity, creditworthiness, and genuineness of the investor. The investor confirmed the transaction, and the assessee provided detailed documentation, including the investor's financial statements showing sufficient funds. The A.O. did not conduct further independent inquiries from the investor or related entities.The CIT(A) upheld the A.O.'s addition, relying on the findings in the S.K. Jain group cases and the lack of robust valuation for the share premium. The CIT(A) also questioned the qualifications of the valuer.The Tribunal found that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transaction. The investor, an NBFC registered with the RBI, confirmed the investment and provided necessary documents. The Tribunal noted that the A.O. failed to conduct further inquiries and relied on unverified reports and statements from the S.K. Jain group cases. The Tribunal emphasized that the assessee cannot be asked to prove the source of the source. The Tribunal concluded that the addition of Rs. 6 crores was unjustified and deleted it.2. Addition of Rs. 12 lakhs on account of unexplained expenditure under Section 69C of the I.T. Act:The assessee challenged the addition of Rs. 12 lakhs on account of alleged commission paid for accommodation entries. The A.O. disallowed the amount, linking it to the accommodation entries provided by the S.K. Jain group.The assessee argued that there was no evidence of such payment and that the A.O.'s conclusion was based on assumptions without any corroborating material. The Tribunal found no material evidence to justify the addition of Rs. 12 lakhs as commission paid for accommodation entries. The Tribunal set aside the orders of the authorities below and deleted the addition of Rs. 12 lakhs.Conclusion:The Tribunal allowed the assessee's appeal, deleting the additions of Rs. 6 crores under Section 68 and Rs. 12 lakhs under Section 69C. The Tribunal emphasized the need for the Revenue to conduct thorough inquiries and not rely on assumptions or unverified reports. The assessee successfully proved the identity, creditworthiness, and genuineness of the transactions, and the additions were found to be unjustified.