2020 (10) TMI 1089 - AT - Income Tax

Tribunal upholds deletion of unexplained cash credits under Income Tax Act

The Tribunal upheld the deletion of additions under Section 68 of the Income Tax Act for unexplained cash credits for Assessment Years 2010-11 and ... Addition u/s. 68 - Addition on account of share capital and share premium as Unexplained cash credit - onus to prove - HELD THAT:- Assessee had discharged the initial onus of proving the fulfilment of primary ingredients of Sec.68. The onus, thus, shifted on Ld. AO to rebut the assessee’s stand as well as documentary evidences by bringing on record cogent material to dislodge the same. Except for relying on a third-party statement, which was never confronted to the assessee, there is no other material to support the conclusion that the said transactions were unexplained cash credit. No opportunity of cross-examination was ever provided to the assessee and in fact, no further investigations were done by Ld. AO to support his conclusion. Therefore, additions could not be sustained in the eyes of law. As rightly noted by Ld. CIT(A), in terms of the decision of Gagandeep Infrastructure P. Ltd. [2017 (3) TMI 1263 - BOMBAY HIGH COURT] proviso to Sec.68 requiring assessee to prove the source of source was applicable only from AY 2013-14 onwards only and therefore, the assessee could not be obligated to prove the source of source for AY 2010-11. We concur with the reliance of Ld. CIT(A) on this binding judicial precedent for the said proposition. Since there is allegation by Ld. AO that the three entities were being managed as well as controlled by Shri Shirish Chandrakant Shah whereas the said party, in the sworn affidavit, has already denied having advanced any accommodation entry to the assessee. Additions made Ld. AO u/s 68 could not be sustained in the eyes of law and hence, rightly deleted by Ld. CIT(A). - Decided in favour of assessee. Issues Involved:1. Deletion of addition under Section 68 of the Income Tax Act for unexplained cash credit.2. Genuineness and creditworthiness of share application money received by the assessee.3. Reliance on third-party statements and lack of cross-examination.Detailed Analysis:1. Deletion of Addition under Section 68 of the Income Tax Act for Unexplained Cash Credit:The revenue contested the deletion of Rs. 1,95,00,000/- added under Section 68 for Assessment Years (AY) 2010-11 and 2011-12. The addition was made on account of share capital and share premium received by the assessee, which the Assessing Officer (AO) deemed as unexplained cash credit. The CIT(A) had deleted this addition, leading to the revenue's appeal.2. Genuineness and Creditworthiness of Share Application Money Received by the Assessee:The assessee provided various documents to prove the identity, genuineness, and creditworthiness of the entities that provided the share application money. This included:- Form-2 Return of Share Allotment filed with the Registrar of Companies (ROC).- Details of the entities to whom shares were allotted.- Compliance certificate from the Company Secretary.- Copies of share application forms and bank statements showing funds movement through banking channels.- Board resolutions authorizing the investments.- Income Tax Return acknowledgements and audited financial statements of the investor entities.The assessee demonstrated that the share application money was routed through banking channels without immediate cash deposits and that the entities had sufficient own funds to make the investments. The CIT(A) found that the assessee had satisfactorily discharged the initial onus of proving the primary ingredients of Section 68.3. Reliance on Third-Party Statements and Lack of Cross-Examination:The AO's addition was primarily based on a statement from Shri Shirish Chandrakant Shah, who admitted to managing the entities providing the share application money and using them for accommodation entries. However, the assessee was not given an opportunity to cross-examine Shri Shah. The CIT(A) and the Tribunal noted that the AO did not bring any other material evidence to support the conclusion that the transactions were unexplained cash credits. The reliance on a third-party statement without cross-examination or further investigation was insufficient to sustain the addition.Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the addition under Section 68, noting that the assessee had provided comprehensive documentary evidence to prove the genuineness and creditworthiness of the transactions. The Tribunal also emphasized that the AO failed to rebut the evidence provided by the assessee and relied solely on an uncorroborated third-party statement. Therefore, the appeals by the revenue were dismissed, and the cross-objections by the assessee, which were merely supportive of the CIT(A)'s order, were also dismissed.Order Pronounced:The revenue’s appeals and the assessee’s cross-objections were dismissed on 22nd October 2020.