Unsupportable addition under Section 68 of the Income Tax Act based on retracted statement
Fact and issue of the case
The revenue has filed the appeal against the order of Commissioner of Income Tax (Appeals)-48, Mumbai passed u/sec143(3) r.w.s 147 and Sec 250 of the Income Tax Act, 1961 (“the Act” ).The revenue has raised the following grounds of appeal:-
Whether on the fact and circumstances of the case the, Ld CIT(A) was justified in deleting the additions on account of accommodation entries by way of share capital and share premium of Rs1,55,00,000/- u/s. 68 of the I.T Act, 1961 from M/s. Empower Industries Ltd without appreciating the fact that Shri. Devang Master, Director of M/s. Empower Industries Ltd has accepted in his statement recorded u/s. 132(4) of the I.T. Act, 1961 on 12.03.2013 that M/s. Empower Industries Ltd is engaged in providing the accommodation entries by way of Share Premium and Share application and the onus was on the assessee to establish genuineness of such transactions especially when the assessee Company was found to be indulged in getting accommodation entries from the entry provider during the search action conducted by Investigation Wing of the Department?”
Whether on the fact and circumstances of the case the, Ld CIT(A) was justified in deleting the additions on account of unexplained expenditure estimated as undisclosed income on account of alleged transaction/commission paid calculated as @5% amounting to Rs. 7,75,000/-for obtaining accommodation entries by way of Share Premium and Share application money of Rs. 1,55,00,000/- added u/s. 68 of the I.T. Act, 1961?
Whether on the fact and circumstances of the case and in law, the Ld. CIT(A) has allowed the appeal of the assessee on the same grounds without appreciating the facts of the AO’s remand report wherein the AO has catagorily commented that the assessee has submitted its bank statement only for two days i.e. on 22.03.2010 & 23.03.2010 for transferring the total amounts of Rs. 1,55,00,000/- and the nature and the utilization of fund transfer are not found of genuine nature?”
Whether on the fact and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee’s appeal for A. Y. 2010-11 whereas the appeal of the assessee for A.Y2012-13 has been dismissed on the same grounds i.e. accommodation entries of Share Premium and Share application?
The appellant praised that the order of the LdCIT (A) on the grounds be set aside and that of the Assessing Officer be restored.
The appellant craves leave to add, amend or alter all or any of the grounds of appeal which may be necessary.
The brief facts of the case are that the assessee company is engaged in the business of investments and trading. The assessee has filed the return of income for the A.Y 2010-11 on 03.10.2010 disclosing a total income of Rs. Nil and the assesseement was completed u/s 143(3) of the Act on 20.03.2013 accepting the returned income of Rs. Nil. Subsequently the assessing Officer (AO) has received the information from DGIT(Inv) Mumbai that the assessee is engaged in obtaining the accommodation entries and is a beneficiary. During the F.Y 2009-10 the assessee has received the share application money from M/s Empower Industries Ltd who are engaged in the providing accommodation entries. The AO has reason to believe that the income has escaped the assesseement and after recording the reasons for reopening of assesseement, has issued notice u/s 148 of the Act. In response to the notice, the assessee has filed the letter to treat the return of income filed on 03.10.2010 as due compliance and the assessee was provided with the reasons and the objections were filed. The A.O. has disposed off the objections on 22-12-2015.
Subsequently the AO has issued notice U/sec 143(2) and 142(1) of the Act, in compliance to the notice the Ld. AR of the assessee appeared from time to time and submitted the details and the case was discussed. The AO on perusal of the financial statements found that the assessee during the financial year 2009-10 has issued 38750 shares of Rs. 10/-each paid up at a premium of Rs.490/- per share. Whereas the assessee has received the share application money from M/s Empower Industries Ltd of Rs.1,55,00,000/- consisting of paid up share value at Rs 8/- per share and share premium of Rs.392/- per share including the security and premium is Rs. 1,55,00,000/-. Whereas to examine the transactions, the AO has issued the show cause notice dated 9-03-2016. The assesee has submitted the details vide letter dated 17-03-2016 the copy of Audit, Copy of Pan Card of the investor company, bank statement reflecting the transactions, copy of share application form, copy of Form .No 2 filed with the R.O.C. and the judicial decisions. The A.O dealt on the information and relied on the statement recorded, and no valuation report was submitted and further the assessee has failed to produce the parties. Finally the AO found that the share application money and share premium does not satisfy the test of genuineness, creditworthiness and identity as per the provisions U/sec68 of the Act and treated as unexplained credit u/s 68 of the Act Rs.1,55,00,000/- and the A.O has estimated brokerage/ commission @5% of the value of Rs. 7,75,000/- U/sec69C of the Act and assessed the total income of Rs.1,62,75,000/-and passed the order u/s 143(3) r.w.s 147 of the Act dated 23.03.2016.
Aggrieved by the order, the assessee has filed an appeal with the CIT(A).The Ld. CIT(A) considered the grounds of appeal, statement of facts, findings of the A.O, submissions of the assessee and the remand report and the catena of Hon’ble High Court and the Hon’ble Tribunal decisions on the genuineness, creditworthiness and identity as per the provisions U/sec68 of the Act.
Observation of the court
We heard the rival submissions and perused the material on record and the judicial decisions. The disputed issues envisaged by the Ld.DR that the CIT(A) has erred in deleting share application money along with share premium and the commission estimated by the revenue authorities. The assessee has received the share application money from M/s Empower Industries Ltd and due to search u/sec132 of the Act on the group, the statements were recorded by the investigation wing that they are only providing accommodation entries and no business activity is conducted. The A.O based on the statements recorded in the course of the search of the group, has made addition of share capital including premium in the hands of the assessee and estimated unexplained expenditure. The A.O has over looked the various documentary evidences filed by the assessee in support of investments including the confirmation letter, PAN Card, Audited financial statements, bank statement reflecting the transactions, copy of share application form, copy of Form .No 2 filed with the R.O.C. etc. In spite of assessee filing all the details, prima-facie the A.O has not conducted any investigation or enquiry in respect of the information submitted by the assessee and relied only on the information of a third party whose statement was not cross examined or tested. We find that the CIT(A) has considered the detailed facts, submissions of the assessee and remand report. The assessee prima-facie has complied with the ingredients required u/s 68 of the Act of genuineness, identity and creditworthiness. The CIT(A) relied on the Catena of judicial decisions in his order and has test checked the creditworthiness and identity of shareholders and came to a reasonable conclusion that the assessee has discharged its burden on submitting the information. Further, the A.O has failed to make further enquiries and relied only on statement of the key person, which was retracted subsequently. We found the order of the CIT(A) is a reasoned and logical order, where the CIT(A) has dealt on the facts, provisions of law and Judicial decisions and applied the ratio of decisions to the present case and deleted the additions. Further, the Ld.DR could not controvert the findings of the CIT(A) with any new cogent evidence or information to take a different view. We considering the facts, circumstances and the submissions of the assessee are of the view that the CIT(A) order is reasoned and conclusive. Accordingly, we do not find any infirmity in the order of the CIT(A) and upheld the same and dismiss the grounds of appeal of the revenue.
In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the open court on 25.08.2023.
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
Read the full order from hereITO-Vs-AMS-Trading-Investment-Pvt-Ltd-ITAT-Mumbai-2