Tribunal remands revenue appeal for fresh adjudication, directs examination of shareholders. Commission deletion issue pending.

The Tribunal allowed the revenue's appeal, remanding the matter back to the CIT(A) for fresh adjudication. The CIT(A) was directed to have the assessee produce the shareholders for examination to prove the genuineness of the transactions. The issue of deletion of Rs. 3 lakhs for commission was not specifically addressed in the Tribunal's order but is likely to be reconsidered during the reassessment process. The decision was made on 27/07/2021.

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Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act of Rs. 3 crores.
2. Deletion of Rs. 3 lakhs on account of commission for obtaining accommodation entries.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68 of the Income Tax Act of Rs. 3 crores:

The appeal was filed by the Assessing Officer (AO) against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] who deleted the addition of Rs. 3 crores made under Section 68 of the Income Tax Act. The AO contended that the assessee failed to produce the parties who invested in the company to prove the genuineness of the transaction. Despite multiple notices and summons issued to the parties, none appeared, and the assessee expressed inability to produce them. The AO concluded that the transactions were bogus based on the search conducted on Mr. S.K. Jain, revealing that the assessee was a beneficiary of accommodation entries.

The CIT(A) deleted the addition, stating that the assessee provided sufficient documentary evidence, including share application forms, confirmations, PAN details, bank statements, and balance sheets of the investor companies. The CIT(A) noted that the AO's independent enquiry did not reveal any adverse information about the shareholders' existence or capacity to invest. The CIT(A) relied on the Supreme Court's judgment in CIT vs. Lovely Export, which held that if the share application money is received from alleged bogus shareholders whose names are given to the AO, the addition cannot be made in the hands of the assessee.

However, the Tribunal found that the CIT(A) did not address the AO's requirement for personal examination of the investors, which the assessee failed to comply with. The Tribunal emphasized that the onus under Section 68 shifts between the assessee and the AO and that the assessee, a private limited company, should have been able to produce the shareholders. The Tribunal cited the Supreme Court's judgment in NRA Iron and Steel Ltd and the Delhi High Court's judgment in NDR Promoters Ltd, which emphasize the necessity of proving the genuineness of transactions and the creditworthiness of investors.

The Tribunal set aside the CIT(A)'s order and directed the assessee to produce the shareholders before the CIT(A), who should either examine them himself or direct the AO to do so. The issue was remanded to the CIT(A) for fresh adjudication after giving the assessee a proper opportunity of hearing.

2. Deletion of Rs. 3 lakhs on Account of Commission for Obtaining Accommodation Entries:

The AO had also made an addition of Rs. 3 lakhs on account of commission for obtaining accommodation entries, which was deleted by the CIT(A). The Tribunal's order does not provide specific details or analysis regarding this addition. However, since the Tribunal remanded the main issue of Rs. 3 crores back to the CIT(A) for fresh adjudication, it can be inferred that the related issue of Rs. 3 lakhs commission would also be reconsidered during the reassessment process.

Conclusion:

The Tribunal allowed the appeal of the revenue for statistical purposes, remanding the matter back to the CIT(A) with directions to the assessee to produce the shareholders for examination. The CIT(A) was instructed to decide the issue afresh, considering the judgments of the Supreme Court and the Delhi High Court, and after providing a proper opportunity of hearing to the assessee. The order was pronounced in the open court on 27/07/2021.

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