2019 (8) TMI 1947 - AT - Income Tax

Share application money/share capital treated as unexplained cash credit u/s68 based only on investigation inputs; addition deleted.

Whether share application money/share capital could be added as unexplained cash credit under s.68 based merely on investigation inputs alleging ... Bogus LTCG - Addition on account of share premium/share application money/Unexplained cash credit u/s.68 - onus to prove - on the basis of information received by the AO from the DGIT(Inv.), Mumbai assessee as a beneficiary had obtained accommodation entries in the garb of share capital and/or share application money - HLD THAT:- As is discernible from the orders of the lower authorities, the A.O neither in the course of the assessment or the remand proceedings had placed on record any ‘material’ which would dislodge the claim of the assessee that it had entered into genuine transactions with the aforementioned parties. Accordingly, on the basis of our aforesaid observations, we are of the considered view that the assessee had duly discharged the ‘onus’ that was cast upon it as regards proving the authenticity of the transactions involving the receipt of share application money from the aforementioned parties. As regards the discrepancies which had initially emerged viz. (i) non-availability of the parties at the addresses; and (ii) difference in the amount of investment made by three share applicants viz. M/s Alka Diamond Industries Ltd, M/s Hema Trading Pvt. Ltd. and M/s Real Gold Trading Pvt. Ltd., the same as observed by us hereinabove was duly explained and reconciled by the assessee in the course of the assessment proceedings itself. As regards the return of notices issued under Sec. 133(6) to one of the share applicant viz. M/s Rajlaxmi Securities Pvt. Ltd., we find that the CIT(A) had rightly observed that the A.O was in error in not intimating the said fact to the assessee. As the requisite confirmation along with other supporting documentary evidence as regards the investment made by the said party was placed on record by the assessee, therefore, there was no plausible reason for drawing of any adverse inferences in respect of the investment made by the said concern. Similarly, in the case of M/s Javda India Impex Ltd. where neither the notice issued under Sec.133(6) was returned nor any confirmation was received, we are in agreement with the view taken by the CIT(A) that the A.O was in error in not bringing the said fact to the notice of the assessee. As the assessee had also substantiated the genuineness of the investment made by the said party by placing on record supporting documentary evidence which had not been rebutted by the A.O, therefore, the CIT(A) had rightly vacated the addition made by the A.O in respect of the investment made by the said party. We thus in terms of our aforesaid observations not finding any infirmity in the order of the CIT(A), who we find had after extensive deliberations rightly deleted the addition made by the A.O towards Sec. 68 of the Act, uphold his order. Appeal filed by the revenue is dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the addition under section 68 in respect of share capital and share premium received from various companies and an HUF was justified on the allegation that the amounts represented accommodation entries obtained through an entry operator. 1.2 Whether the assessee's cross-objection alleging non-adjudication by the first appellate authority of the challenge to reopening under sections 147/148 was sustainable. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Addition under section 68 in respect of share capital and share premium (a) Legal framework (as discussed) 1.3 The addition was made under section 68 on the footing that the share capital and share premium received from nine investor entities (other than one HUF) represented unexplained cash credits and mere accommodation entries. The Tribunal proceeded on the settled parameters under section 68 requiring the assessee to establish the identity and creditworthiness of the creditors/investors and the genuineness of the transactions. 1.4 The Assessing Officer relied on information from the investigation wing and on the search proceedings in the case of an alleged accommodation entry provider, whose statement recorded during search was later retracted. (b) Interpretation and reasoning 1.5 The Tribunal noted that in the original assessment under section 143(3), the Assessing Officer himself had recorded that all ten investor parties had confirmed investments aggregating to the impugned amount. Upon reopening, during reassessment proceedings, the seven specifically targeted investors again confirmed their respective investments by way of share capital and share premium. 1.6 The Tribunal recorded that the assessee had, both at the time of the original assessment and again in the reassessment, furnished complete documentary evidence in respect of all investors, including: (i) full postal addresses; (ii) copies of their returns of income; (iii) PAN details; (iv) bank statements evidencing payments by account payee cheques; (v) share application forms; (vi) share certificates issued; and (vii) intimation to the Registrar of Companies. No cash deposits were found in the bank accounts of the investor entities proximate to or linked with the impugned investments. 1.7 On creditworthiness, the Tribunal relied on the financial particulars of the investor companies placed on record, including their share capital and reserves and profits as per profit and loss accounts, which showed substantial net worth and profits in each case from serial nos. 1 to 9. The Assessing Officer did not bring any contrary material to dislodge these figures or to show that the investors lacked financial capacity. 1.8 As to genuineness, the Tribunal emphasized that all payments were routed through banking channels by account payee cheques; there was no evidence of any cash trail; no material was brought on record, even in remand proceedings, to show that the share application money/share premium was received in lieu of cash returned by the assessee. The Assessing Officer failed to produce any 'specific incriminating evidence' despite being called upon by the first appellate authority. 1.9 Regarding the alleged discrepancies in confirmations initially received from three investors (M/s Alka Diamond Industries Ltd., M/s Hema Trading Co. Pvt. Ltd., and M/s Real Gold Trading Pvt. Ltd.), the Tribunal accepted the explanation that these entities had made investments through two share application forms but, due to oversight, details were initially given only for one application. The assessee had later filed the remaining bank statements and application forms, and the discrepancy was thus reconciled. 1.10 For investors where notices under section 133(6) were initially returned or not responded to (notably M/s Rajlaxmi Securities Pvt. Ltd. and M/s Javda India Impex Ltd.), the Tribunal endorsed the first appellate authority's finding that (i) the non-service or non-response was not brought to the assessee's notice during assessment; and (ii) independently of section 133(6) responses, the assessee had filed confirmations and full supporting documents which were not rebutted. In such circumstances, mere non-service or non-response to section 133(6) notices could not justify adverse inference under section 68. 1.11 On the allegation that the investments were accommodation entries routed through an identified entry operator, the Tribunal held that the entire addition rested only on general information arising from search in the case of such alleged entry provider. The specific statement relied upon had been retracted by the person concerned, and the Assessing Officer neither examined such retraction nor produced any corroborative, party-specific material linking the assessee's share capital and premium receipts to bogus accommodation entries. 1.12 The Tribunal concluded that the assessee had discharged the primary onus under section 68 regarding identity, creditworthiness, and genuineness, and that the burden had shifted to the Assessing Officer. As the Assessing Officer failed, both in assessment and remand, to bring on record any cogent or irrefutable evidence to disprove the assessee's evidence or to establish a cash-back arrangement, the presumption underlying the addition under section 68 could not be sustained. (c) Conclusions 1.13 The Tribunal upheld the finding of the first appellate authority that the addition made under section 68 in respect of share capital of Rs. 23,30,000 and share premium of Rs. 2,28,60,000 was unsustainable. The deletion of the entire addition on account of alleged unexplained share capital/share premium was affirmed, and the Revenue's appeal was dismissed. Issue 2 - Alleged non-adjudication of challenge to reopening under sections 147/148 (a) Legal framework (as discussed) 2.1 The cross-objection challenged the reopening under section 148 as bad in law and, in the alternative, alleged that the first appellate authority had failed to decide the validity of the reopening under sections 147/148, in violation of principles of natural justice. (b) Interpretation and reasoning 2.2 The Tribunal examined the order of the first appellate authority and found that the latter had, in fact, specifically dealt with and decided the issue of validity of the jurisdiction assumed under section 147, after detailed consideration in paras 4.1-4.2 (pages 3-5 of that order). The first appellate authority had held that there was requisite material before the Assessing Officer to form the belief that income had escaped assessment and had upheld the reopening. 2.3 In view of such express adjudication by the first appellate authority, the Tribunal held that the assessee's complaint that the issue of reopening was not decided was factually incorrect and misconceived. (c) Conclusions 2.4 The Tribunal rejected the assessee's cross-objection on the ground that the issue of reopening had already been adjudicated by the first appellate authority. The cross-objection was dismissed.