2022 (6) TMI 26 - AT - Income Tax

Tribunal rules on Revenue's appeal, upholds CIT(A)'s decision on share application money. Assessee's appeal partly allowed.

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the addition made under Section 68 regarding the legitimacy of share ... Addition u/s 68 - unexplained cash credit - share application money receipts - sole basis for the AO to draw an adverse inference against assessee is investigation report of Income Tax Department Ahmadabad and statements of certain persons recorded at the time of investigation - HELD THAT:- AO never disputed fact that the assessee has filed necessary evidences, but he has ignored all the evidences filed by the assessee only on the basis of statement recorded from Mr. Shrish Chandrakanth Shah and came to the conclusion that transactions of share capital / share application money is nothing but undisclosed income of the assessee which has been routed through share application money from web off companies floated by Mr.Shrish Chandrakanth Shah through multiple layers. In our considered view, the conclusion drawn by the Assessing Officer on the basis of statement of some persons is completely on the basis of suspicion and surmises without there being any further evidences to support his findings. Further, we have gone through statements recorded from some persons, which are part of assessment order and we find that nowhere persons directly alleged that the assessee is involved in the activity of taking accommodation entries of share capital / share application money from those companies. In fact, the assessee has proved with necessary evidence that an allegation of the Assessing Officer is wrong and transaction between the assessee and investor companies are genuine business transactions. Therefore, we are of the considered view that the Assessing Officer has completely erred in making additions towards share capital / share application money received from certain companies as unexplained cash credit which is taxable u/s.68. Thus the assessee, by filing enormous details, has discharged its initial onus to prove identity, genuineness of transactions and creditworthiness of the shareholders. The AO, without carrying out further inquiries in order to ascertain the claim of the assessee, jumped into conclusion on the basis of report of Investigation wing, and financial statements of the subscribers that none of the subscribers had enough source of income to establish creditworthiness. Even though there were circumstances leading to suspicion, yet having taken an action u/s.132 and enquiries made in the assessment proceedings, the assessing authority had not brought any positive material or evidence to indicate that share application money as such represented assessee’s own undisclosed money brought back in the garb of share capital. Merely because of his subjective satisfaction that source of availability of money with the shareholder or their creditworthiness were not established, the AO could not treat the genuinely raised share capital as deemed income u/s.68. AO was erred in making additions towards share capital, including share premium u/s 68 - Decided in favour of assessee. Disallowance of rent u/s.40A(2)(b) - lease rent paid by the assessee to related party - HELD THAT:- We find that a similar issue had been considered by the Tribunal for earlier and subsequent assessment years in assessee’s own case [2019 (8) TMI 400 - ITAT CHENNAI] where, the issue has been set aside to the file of the Assessing Officer to reconsider the issue of disallowance of lease rent paid by the assessee to related party u/s.40A(2)(b) - Thus set aside this issue to the A.O and direct the Assessing Officer to reconsider the issue. Validity of assessment order u/s.143(3) r.w.s 153A - HELD THAT:- We find that there is no merit in legal ground taken by the assessee challenging validity of assessment order passed u/s.143(3) r.w.s. 153A - We further noted that assessment for the impugned assessment year has been completed consequent to search operation conducted in the case of the assessee, where certain incriminating materials were found and seized which suggest escapement of income. Therefore, we are of the considered view that there is no merit in legal ground taken by the assessee in light of certain judicial precedents and thus, grounds of appeal filed by the assessee are rejected. Issues Involved:1. Legitimacy of share application money/share premium treated as unexplained cash credit under Section 68 of the Income Tax Act, 1961.2. Disallowance of rent under Section 40A(2)(b) of the Income Tax Act, 1961.3. Validity of assessment order passed under Section 143(3) read with Section 153A of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Legitimacy of Share Application Money/Share Premium:The primary issue revolved around the addition of Rs. 51,00,00,000/- made by the Assessing Officer (AO) towards share application money/share premium, which was treated as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The AO based this addition on the statements recorded during a search operation conducted on Mr. Shrish Chandrakanth Shah and his associates, who admitted to providing accommodation entries for a commission. The AO concluded that the share application money received by the assessee from various companies was not genuine and represented the assessee's unaccounted income.The assessee contended that it had provided all necessary documents to prove the identity, genuineness, and creditworthiness of the investors, including names, addresses, PAN details, financial statements, and confirmations. The CIT(A), after considering the submissions and relying on the decision of the Hon'ble Jurisdictional High Court of Madras in the assessee's own case for AY 2007-08, deleted the addition made by the AO. The CIT(A) held that the assessee had satisfactorily discharged its burden of proof under Section 68 by providing sufficient evidence to establish the identity, genuineness, and creditworthiness of the investors.The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO had not provided any concrete evidence to disprove the assessee's claims and had solely relied on the statements of third parties without any direct evidence against the assessee. The Tribunal noted that the assessee had filed comprehensive documentation to support its claims, and the AO's conclusion was based on suspicion and conjecture rather than substantive evidence.2. Disallowance of Rent under Section 40A(2)(b):The second issue concerned the disallowance of Rs. 12,99,429/- under Section 40A(2)(b) of the Income Tax Act, 1961, related to the lease rent paid by the assessee to its Managing Director for a property in Chennai. The AO disallowed the excess rent paid by the assessee, determining that the market rate for the property was significantly lower than the rent paid.The assessee argued that the rent paid was reasonable considering the prime location of the property and the amenities provided. The Tribunal, referring to its earlier decision in the assessee's own case for AY 2013-14 to 2015-16, set aside the issue to the file of the AO for reconsideration. The AO was directed to determine the fair rent of the property in accordance with the procedure prescribed under the Tamil Nadu Buildings (Lease & Rent Control) Act, 1960, and the City Municipal Corporation Act, considering the location, amenities, and prevailing market rates.3. Validity of Assessment Order under Section 143(3) read with Section 153A:The assessee challenged the jurisdiction of the AO in passing the assessment order under Section 143(3) read with Section 153A, arguing that the additions were not based on any incriminating material found during the search. The assessee contended that in the absence of incriminating material, no addition could be made for a concluded assessment year.The Tribunal rejected the assessee's legal ground, noting that the assessment was completed based on materials found during the search, which suggested escapement of income. The Tribunal held that the AO had jurisdiction to pass the assessment order under Section 143(3) read with Section 153A, as the search had yielded incriminating evidence.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the addition made under Section 68. The Tribunal partly allowed the assessee's appeal, setting aside the issue of rent disallowance to the AO for reconsideration and rejecting the legal ground challenging the validity of the assessment order.