2022 (8) TMI 744 - AT - Income Tax

Tribunal upholds Rs. 3.5M cash credits under Section 68 in appeal dismissal. Assessing Officer's authority validated.

The Tribunal upheld the addition of Rs. 3,50,00,000 under Section 68 as unexplained cash credits, dismissing the appeal of the assessee. The Tribunal ... Unexplained cash credits under section 68 - Assessment under section 153A - Onus of proof under section 68 - Accommodation entries and bogus share capital/share premium - Use of seized/incriminating material in post search assessments - Shifting of onus where information is unverifiableAssessment under section 153A - Use of seized/incriminating material in post search assessments - Whether additions could be sustained under assessments completed after search (u/s 153A) in the absence of incriminating material found and seized. - HELD THAT: - The Tribunal found that the plea of absence of incriminating material was not taken before the Assessing Officer and was belatedly raised on appeal. The record showed that a plethora of documents incriminating in nature were recovered during the search, including material from the bogus entry operator, and these were available to and utilised by the Assessing Officer. The CIT(A) had cogently rejected the assessee's contention and the Tribunal concurred that the Assessing Officer was entitled to rely on seized material and other information in framing assessment under section 153A; therefore the addition was not made 'dehors' incriminating material. [Paras 7]The plea that additions were made without any incriminating material is rejected and the use of seized/incriminating material in the 153A assessment is upheld.Unexplained cash credits under section 68 - Onus of proof under section 68 - Shifting of onus where information is unverifiable - Accommodation entries and bogus share capital/share premium - Whether the share capital and share premium introduced could be treated as unexplained cash credits and added to income under section 68. - HELD THAT: - The Assessing Officer, and thereafter the CIT(A), found that substantial share application monies/premium had been routed through paper companies linked to known bogus entry operators; many investor entities were not traceable at the addresses provided and were not produced for verification. Documentary evidence furnished by the assessee (PAN, ROC extracts, limited bank statements, audited accounts) was held insufficient in the circumstances to discharge the onus under section 68. The authorities applied the test of human probabilities, reliance on surrounding circumstances and precedents which permit detailed scrutiny in cases of accommodation entries. Given the non existence or unverifiability of subscribing entities and the patterns indicative of accommodation entries, the sums introduced were held to be unexplained cash credits and added to the assessee's income. [Paras 8, 9]The addition of the share capital and share premium as unexplained cash credits under section 68 is sustained.Onus of proof under section 68 - Shifting of onus where information is unverifiable - Whether the assessee discharged the onus to prove identity, genuineness and creditworthiness of share applicants. - HELD THAT: - Both the Assessing Officer and the CIT(A) found that the assessee did not adequately discharge the onus. Although certain documents and bank statements were produced, the AO's enquiries showed that the subscribing entities could not be physically verified and were not produced for cross verification; bank statements lacked narrations and exhibited suspicious timing of credits. The authorities held that merely furnishing names, PAN and ROC entries is not invariably sufficient for a private company and that where enquiries produce unverifiable or doubtful information the onus shifts back to the assessee to take reasonable steps (including producing principal officers) to satisfy the AO. The Tribunal agreed with this approach in the facts of the case. [Paras 8]Assessee failed to discharge the onus under section 68 and the onus rightly shifted back to it; consequence is addition.Final Conclusion: Appeal dismissed. The orders of the Assessing Officer and the CIT(A) upholding the addition of share capital and share premium introduced in Assessment Year 2006-07 as unexplained cash credits under section 68 (in proceedings under section 153A), and the related findings on onus and accommodation entries, are affirmed. Issues Involved:1. Legitimacy of addition under Section 153A without incriminating material.2. Authority of the Assessing Officer under Section 153A to disturb regular assessment items without adverse material.3. Validity of addition of share capital and share premium amounting to Rs. 3,50,00,000.4. Discharge of onus under Section 68 by the assessee.5. Confrontation of material gathered and inquiries conducted by the Assessing Officer.6. Rejection of assessment order of share applicants and other materials produced by the assessee.Detailed Analysis:1. Legitimacy of Addition under Section 153A without Incriminating Material:The assessee argued that the addition under Section 153A was made without any incriminating material found during the search. However, the Tribunal noted that no such ground was taken before the Assessing Officer initially. It was evident from the records that numerous documents incriminating in nature were found during the search, including those related to bogus entry operators. The Tribunal concluded that the plea of absence of incriminating material was devoid of merit.2. Authority of the Assessing Officer under Section 153A:The assessee contended that the Assessing Officer was not empowered under Section 153A to disturb items of regular assessment without adverse material found during the search. The Ld. CIT(A) held that the Assessing Officer is not restricted to only utilize incriminating material collected during the search operation. The Assessing Officer had used crucial documents found and seized during the search in determining the total income of the assessee, validating the impugned order.3. Validity of Addition of Share Capital and Share Premium:The Assessing Officer noted that the assessee had introduced fresh capital without justification for the huge share premium. The shares were issued to various parties, none of which were verifiable at the provided addresses. The assessee failed to produce complete information or any representative from the investing companies. The Tribunal upheld the addition of Rs. 3,50,00,000 as unexplained cash credits under Section 68, noting that the transactions were through bogus companies operated by entry operators.4. Discharge of Onus under Section 68:The assessee claimed to have discharged the onus under Section 68 by providing documents like PAN, certificate of incorporation, annual returns, audited accounts, and bank particulars. However, the Tribunal observed that the mere submission of documents was insufficient. The assessee failed to produce the directors of the investing companies for verification, and the companies were not traceable at the provided addresses. The Tribunal emphasized that the onus shifts back to the assessee if the information becomes unverifiable, which the assessee failed to discharge.5. Confrontation of Material Gathered and Inquiries Conducted:The assessee argued that the material gathered and inquiries conducted at their back were not properly confronted by the Assessing Officer. The Tribunal found that the Assessing Officer had confronted the assessee with the incriminating material and the assessee did not raise this issue during the assessment proceedings. The Tribunal concluded that the Assessing Officer had validly utilized the information obtained during the search.6. Rejection of Assessment Order of Share Applicants:The assessee contended that the assessment orders of the share applicants and other materials produced were capriciously rejected. The Tribunal noted that the Assessing Officer had valid reasons to reject the documents provided by the assessee as the investing companies were found to be non-existent or paper companies. The Tribunal upheld the rejection of the assessment order of the share applicants, affirming the addition made by the Assessing Officer.Conclusion:The Tribunal dismissed the appeal of the assessee, upholding the addition of Rs. 3,50,00,000 under Section 68 as unexplained cash credits. The Tribunal found no merit in the assessee's arguments regarding the absence of incriminating material, the authority of the Assessing Officer under Section 153A, the discharge of onus under Section 68, and the rejection of the assessment order of share applicants.