2021 (8) TMI 707 - AT - Income Tax

Revenue's Appeal Dismissed in Share Application Money Addition Case, Tribunal Supports Assessee

The Tribunal dismissed the revenue's appeal and affirmed the CIT(A)'s decision to delete the addition of Rs. 4 crores under section 68 of the Income Tax ... Section 68 of the Income Tax Act - identity, genuineness and creditworthiness - share application money - burden of proof on the assessee - notices under section 133(6) and summons under section 131 - adverse inference for non-appearance to summons - reliance on statement recorded under section 132(4)Section 68 of the Income Tax Act - identity, genuineness and creditworthiness - share application money - burden of proof on the assessee - Deletion of addition made under section 68 of the Act in respect of share application money of Rs. 4 crores. - HELD THAT: - The Tribunal accepted that the assessee discharged the initial onus under section 68 by producing documents establishing the identity of the investor companies, the genuineness of the transactions (share application forms, board resolutions, bank statements, confirmations) and the creditworthiness of the investors (audited balance sheets and returns). The AO had issued notices under section 133(6) and summons under section 131 to the investor companies, and those companies responded to the AO by filing the required information and documents. The AO nevertheless treated the receipts as unexplained relying on a statement recorded under section 132(4) during search proceedings and on the non-appearance in person of the investor companies' directors before the AO. The Tribunal held that mere non-appearance of the investors in person does not automatically permit drawing an adverse inference against the assessee where documentary proof has been furnished and the AO did not take statutory steps against the non-appearing parties; further, reliance on a departmental witness's statement without affording opportunity for cross-examination was improper. On these facts the Tribunal found no material to displace the documentary evidence and sustained the deletion of the addition made under section 68. [Paras 3]The deletion of the addition under section 68 was affirmed; the assessee had discharged the onus and the AO's reliance on the statement under section 132(4) and on non-appearance did not justify the addition.Final Conclusion: The revenue appeal is dismissed and the order of the CIT(A) deleting the addition under section 68 in respect of the share application money for A.Y.2012-13 is confirmed. Issues Involved:1. Justification of deletion of addition made on account of receipt of share application money amounting to Rs. 4 crores.Issue-wise Detailed Analysis:1. Justification of Deletion of Addition on Account of Share Application Money:The primary issue in this appeal is whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the addition of Rs. 4 crores made by the Assessing Officer (AO) under section 68 of the Income Tax Act, 1961. The AO had alleged that the share application money received by the assessee, a private limited company engaged in wholesale trading of textile fabrics, was not genuine and was merely accommodation entries provided by certain entities controlled by Shri Shirish C Shah.a. Evidence Submitted by Assessee:The assessee received share application money from three entities: Aadhar Ventures (I) Ltd, Speciality Papers Ltd, and Twenty First Century (I) Ltd. To substantiate the identity, creditworthiness, and genuineness of the transactions, the assessee submitted various documents including:- Audited balance sheets showing sufficient share capital and revenue.- PAN details and share application forms.- Board resolutions for making investments.- Bank statements highlighting the investment transactions.- Confirmations from the investor companies.- Acknowledgements of filing of income returns.- Certificates from the Registrar of Companies.b. AO's Investigation:The AO relied on information from the Investigation Wing and statements made by Shri Shirish C Shah, alleging that the transactions were accommodation entries. The AO issued notices under section 133(6) and summons under section 131, which were responded to by the investor companies with the necessary documents. However, the directors of these companies did not appear in person before the AO.c. CIT(A)'s Findings:The CIT(A) observed that the assessee had provided all necessary evidence to prove the identity, creditworthiness, and genuineness of the transactions. The CIT(A) noted that the AO had not drawn any adverse inference from the documents submitted by the investor companies. The CIT(A) also highlighted that merely because the directors did not appear in person, an adverse inference could not be drawn. Furthermore, the AO did not take any action against the investor companies for non-appearance, which weakened the AO's stance.d. Tribunal's Conclusion:The Tribunal upheld the CIT(A)'s decision, stating that the assessee had discharged its onus under section 68 by providing sufficient evidence. The Tribunal emphasized that the AO had not brought any material evidence to prove that the share application money was not genuine. The Tribunal also noted that the investor companies were widely held public limited companies with significant financial standing, making it improbable that they were involved in providing accommodation entries. The Tribunal concluded that reliance on the statement of Shri Shirish C Shah without providing the assessee an opportunity for cross-examination was not justified.Final Judgment:The Tribunal dismissed the appeal of the revenue, affirming the CIT(A)'s decision to delete the addition of Rs. 4 crores made under section 68 of the Income Tax Act. The Tribunal found no infirmity in the CIT(A)'s order and ruled in favor of the assessee.