2020 (12) TMI 1063 - AT - Income Tax

Tribunal rules share application money not unexplained cash credit under Income Tax Act

M/s Lakshmi Narayan Rice And Food Products Pvt. Ltd. Versus Income Tax Officer, Ward-2 (1), Burdwan

The Tribunal ruled in favor of the assessee, finding that the share application money should not be treated as unexplained cash credits under Section 68 ... Unexplained cash credits addition u/s 68 - as per revenue since the assessee’s twin investor entities had been found lacking genuineness / creditworthiness, they have been rightly treated as shell entities thereby inviting the impugned addition - HELD THAT:- We find no reasons to sustain the impugned addition. We make it clear that not only the assessee has proved itself to be genuine business entity engaged in rice mill business having turnover of ₹56,640/-from assessment year 2010-11 rising to ₹3,82,83,005/- on pertaining to assessment year 2020-21 but also it has successfully filed on record the twin investor entities supportive evidence and confirmations before the Assessing Officer. All these clinching facts have nowhere been rebutted from the Revenue side since had its case deals with documentary evidence does not itself amount to proving genuineness / creditworthiness of the investor parties in view of hon'ble apex court’s decisions in Commissioner of Income Tax vs. Durga Prasad More [1971 (8) TMI 17 - SUPREME COURT] & Sumati Dayal [1995 (3) TMI 3 - SUPREME COURT] - Twin investor parties herein have also explained source of impugned share application money as it is clear from a perusal of the page 43 wherein M/s Astha Rice Mill (P) Ltd. stated the source of impugned share application of ₹10 lakh each coming from similar three investor parties. This tribunal’s co-ordinate bench decision in M/s Sanmin Trading & Holding Pvt. Ltd. [2020 (11) TMI 606 - ITAT KOLKATA] holds that such a share capital involving investor entity’s detailed evidence, confirmation and explanation of source does not attract unexplained cash credits additions - Decided in favour of assessee. Issues Involved:1. Treatment of Share Application Money as Unexplained Cash Credits under Section 68 of the Income Tax Act, 1961.2. Genuineness and Creditworthiness of Investor Entities.3. Burden of Proof and Onus on the Assessee and the Revenue.Issue-wise Detailed Analysis:1. Treatment of Share Application Money as Unexplained Cash Credits under Section 68 of the Income Tax Act, 1961:The core issue in this case is whether the share application money received by the assessee from M/s Pilot Barter Pvt Ltd. and M/s Astsha Tower Pvt. Ltd., totaling Rs. 90,00,000/-, should be treated as unexplained cash credits under Section 68 of the Income Tax Act, 1961. The Assessing Officer (AO) concluded that the assessee failed to prove the genuineness and creditworthiness of the investor entities, leading to the addition of the said amount as unexplained cash credits. The AO's decision was affirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].2. Genuineness and Creditworthiness of Investor Entities:The Revenue's stance was that the investor entities lacked genuineness and creditworthiness, thereby categorizing them as shell entities. The assessee, however, provided extensive documentation, including application forms, income-tax return acknowledgements, audited accounts, bank statements, PANs, and ROC details, to substantiate the genuineness of the transactions. The Tribunal noted that the assessee had successfully demonstrated the genuineness and creditworthiness of the investor entities, and the Revenue did not provide any evidence to rebut these documents. The Tribunal emphasized that the mere presentation of documentary evidence does not automatically prove the genuineness and creditworthiness of the investor parties, referencing the Supreme Court decisions in Commissioner of Income Tax vs. Durga Prasad More and Sumati Dayal vs. Commissioner of Income Tax.3. Burden of Proof and Onus on the Assessee and the Revenue:The Tribunal highlighted that the initial burden of proof lies on the assessee to establish the identity, genuineness, and creditworthiness of the creditors. Once the assessee discharges this burden, the onus shifts to the Revenue to disprove the evidence provided by the assessee. The Tribunal cited several judicial precedents, including the decisions of the Hon'ble Calcutta High Court and the Supreme Court, which established that the AO must conduct meaningful inquiries and cannot merely reject the evidence provided by the assessee without proper investigation. The Tribunal concluded that the AO and CIT(A) failed to conduct adequate inquiries and relied on presumptions to make the addition under Section 68.Conclusion:The Tribunal found no justification to sustain the addition of Rs. 90,00,000/- as unexplained cash credits. It held that the assessee had successfully demonstrated the genuineness and creditworthiness of the investor entities through substantial evidence. The Tribunal directed the deletion of the impugned addition, thereby allowing the assessee's appeal. The order was pronounced in open court on 14/12/2020.