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Facts
The assessee declared a loss in its return of income. Subsequently, based on information received, the Assessing Officer (AO) made an addition of Rs. 2,60,00,000/- on account of unexplained cash credit under Section 68. The CIT(A) deleted this addition. The revenue appealed this deletion.
Held
The Tribunal held that the assessee had discharged its primary onus by providing details of the investors and their bank accounts. The AO failed to bring any material on record to rebut the assessee's submissions. The statements relied upon by the AO were retracted, and for the relevant assessment year (2012-13), it was not required to prove the source of source.
Key Issues
Whether the addition made by the AO on account of share capital as unexplained cash credit under Section 68 is justified, given the evidence provided by the assessee and the AO's failure to rebut it.
Sections Cited
68, 143(1), 148, 143(3), 147
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Before: SHRI NARENDER KUMAR CHOUDHRY, JUDICIAL & SMT. RENU JAUHRI
स िवाई की िारीख / Date of Hearing 07.05.2025 घोर्णा की िारीख/Date of Pronouncement 30.06.2025 आदेश / O R D E R PER RENU JAUHRI [A.M.] :- This appeal is filed by the assessee against the order of the Learned Commissioner of Income-tax (Appeals), Mumbai/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] dated 22.10.2024 passed u/s. A.Y. 2012-13 M/s. Chopra Strips Ltd. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Year [A.Y.] 2012-13.
The assessee has raised the following grounds of appeal:
1. Whether in the facts and circumstances of the case and in law the assessee has satisfied the triple test condition prescribed u/s. 68 of the I.T Act, 1961 in terms of identity, creditworthiness and genuineness of the creditor, in view of specific information received from investigation wing regarding share capital received from Kolkata based accommodation entry operator.
2. Whether in the facts and circumstances of the case and in law the Ld. CIT(A) has failed to consider the fact of the case that the Assessing Officer made relevant enquiring including sending the commission and therefore has proved beyond doubt that assessee is beneficiary of accommodation entry in the nature of Share Capital.
3. Whether in the facts and circumstances of the case and in law the Ld. CIT(A) has ignored the applicability of human probabilities as held in Sumati Dayal V. CIT [1995] 214 ITR 801 by Hon'ble Supreme Court.”
3. Brief facts of the case are that the assessee filed its return of income on 19.09.2012, declaring a loss of Rs. 1,81,948/-. The return was processed u/s 143(1) of the Act. Subsequently, based on the information received from the Investigation Wing, Kolkata, a notice u/s 148 was issued on 18.03.2019. Therefore, AO completed the assessment u/s 143(3) r.w.s. 147 of the Act, at the assessed income of Rs. 2,58,18,052 after making an addition of Rs. 2,60,00,000/- on account of unexplained cash credit u/s 68 of the Act.
4. Aggrieved with the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). Vide order dated 22.10.2024, the Ld. CIT(A) deleted the addition made by the Ld. AO.
A.Y. 2012-13 M/s. Chopra Strips Ltd.
Aggrieved with the order of Ld. CIT(A), the revenue has filed the present appeal before the Tribunal. With regard to the sole issue involved, the brief facts are as follows: i. It came to the notice of the Ld. AO that the assessee had made the following transactions in which huge share premium was received: 1. Prime Capital Market Kolkata (PCM) - Rs. 1,45,00,000/- 2. Unisys Software & Holding Industries Ltd. Kolkata (USHI)–Rs. 1,15,00,000/- Total - Rs. 2,60,00,000/- Ld. AO asked the assessee to prove the creditworthiness of the ii. investors and the genuineness of the transactions. The assessee requested the AO to provide copies of statements recorded by Investigation Wing, which were duly provided. Since the persons were based in Kolkata, a commission was issued to the ADIT (Inv.), Kolkata for giving the assessee an opportunity to cross-examination all the persons whose statements were being used against the assessee. However, despite a specific opportunity provided, the assessee did not avail the opportunity of cross-examination at Kolkata and instead requested the AO to summon the concerned persons in Mumbai office. Further, a commission was also issued by Ld. AO to ADIT (Inv.) iii. Kolkata to verify the existence and genuineness of activities of the above-mentioned two entities.
A.Y. 2012-13 M/s. Chopra Strips Ltd. Based on the report received from ADIT (Inv.) Kolkata as well as the iv. statements of Shri Sushil Purohit and Shri Jagdish Purohit recorded earlier, who are directors of PCM & USHI, Ld. AO came to the conclusion that the amounts received from these parties by way of share capital premium is unexplained cash credit as per the provisions of Section 68 of the Act as the assessee had failed to prove the creditworthiness of the entities and genuineness of the transactions amounting to Rs. 2,60,00,000/- However, in appeal, the impugned addition was deleted by the Ld. v. CIT(A), with the following observations: 5.4.10 From the assessment order, the AO has found the source of money in the hands of share applicant to be not satisfactory either on account of non-submission of some document/evidence or on account of cash deposit in the bank account of "source of source" just prior to payment by "such source of source" person to the "source" person of the appellant. From the submission made by the appellant, it is seen that the appellant had submitted copies of bank statement and other details that appellant had received money from these companies against share capital. Even in the recorded statement of Shri Sushil Purohit and Shri Jagdish Purohit (which is retracted later on), it is nowhere stated the share capital subscribed by them were accommodation entries against cash received by them from the appellant. Even if we assume that whatever stated by Shri Jagdish Purohit and Shri Sushil purohit assumed to be true, at two stages department has got opportunity to gather material in support of the crucial averments made by these people. First at the stage of search, DDIT might have established through material evidence that whatever the alleged accommodation entries were originated either directly or indirectly from the receipt of cash from the appellant. However no such facts were brought on record after taking confession from these people. Another opportunity to gather evidence is at the stage of assessment proceedings where AO or DDIT to whom commission was given might have tried to establish source of source was bogus and originated or connected to sources close to the appellant. However no such findings were gathered or noted by AO in his assessment order for establishing appellant routed his own funds in the garb of share capital in to his company. Since the AO has not proved with evidences any direct nexus or specific material brought on record in accordance with the provisions of law, it A.Y. 2012-13 M/s. Chopra Strips Ltd. cannot be presumed that the share capital of Rs. 2,60,00,000/- as unexplained and are accommodation entries. The circle of evidence whether factual or circumstantial need to be complete and not refutable. The appellant has furnished the basic details of the identity of share applicants and also the bank statements. Following the precedents laid down by various judicial authorities which are discussed and reproduced in this order, the addition made by the A.O. of Rs.2,60,00,000/- as unexplained cash credit u/s. 68 of the I.T. Act does not stand firm in the eyes of law and is directed to be deleted. Ground of appeal nos. 1 to 5 are therefore, allowed.
6. Before us, Ld. DR argued that Ld. CIT(A)’s order deserves to be set aside, as he has not properly appreciated the facts of the case and the enquiries made by the AO and the investigation wing. Relevant portion of the written submissions filed by the Ld. DR on 08.05.2025 is as under: “1. No prudent investor will invest such a huge amount in a loss making company.
2. It is a matter of fact that source of source has cash deposits there are corresponding transfers
3. Assessee has accepted that he is an accommodation entry provider. The statement has been retracted later on without giving any reason which clearly shows that retraction is nothing but an afterthought.
4. These companies have given accommodation entries to various persons as they are into accommodation entry business which is a matter of broad and detailed investigation.
5. Since assessee has retracted from the confession made, AO tried to give opportunity through Commissions etc. for cross examination but the assessee did not avail it.
6. Mere retraction cannot be reason for deleting the additions made especially in light of the fact that detailed enquiries have been made and it has been proven that assessee is one of the beneficiaries in receiving accommodation entries.
7. The civil law needs to be adjudicated based on preponderance of probabilities and in this case all the circumstantial evidence suggests that investment of such a huge amount in loss making entity is nothing but accommodation entry and thus fails on the test of genuineness.”
7. In response, the Ld. AR has also filed written submissions, and relevant portion thereof is reproduced below: “i) The assessee issued share capital to 36 subscribers in two tranches during the year (407495 shares) including these two concerns on face value of ₹10/- each at a premium of Rs 140/- each thereby raising a sum of 611 lacs including 260 lacs from these two companies.
A.Y. 2012-13 M/s. Chopra Strips Ltd. ii) The appellant vehemently emphasize that the share application money was received through proper banking channels; that the shareholder companies had sufficient fund in their books of account for the purpose of investment (as below); the investments are duly reflected in their books of account. Apropos in support, the appellant submitted its Bank account statements and also of the shareholders to confirm that the transactions were made through banking channels. iii) In the course of assessment proceedings details of share capital raised i.e., name & address of the share applicants, no of shares allotted and amount along with Form No- 2 filed with ROC, copy of annual report & ITR etc. iv) Name of the Share Subscriber Company (A)PRIME CAPITAL MARKETS LTD (as per extract of abridged B/S as on 31.03.2011 9PB Page No200-201) Total own funds as on31.03.2011 - - - - - - - Rs 1134 Lacs Investment with assessee on 09.09.2011 - - - - - - Rs 144.98 lacs (B)UNISYS SOFTWARE & HOLDING INDUSTRIES LTD (as per extract of abridged B/S as on 31.03.2011 PB Page No 267-268) Total own funds as on31.03.2011 - - - - - - Rs 5571lacs Investment with assessee on 09.09.2011 - - - - - Rs114.99 lacs v) Thus, evidently both the share applicant companies had sufficient funds with them for the purpose of making such investments. vi) In support of genuineness of transaction, appellant submitted following documents (PB-Page no 149-182)) (a) Extract of bank statement evidencing receipt of funds towards shares subscribed by these companies. (b) Form-2(Return of Allotment) shares allotted during the year i.e on 09.12.2011&14.02.2012 respectively. vii) The AO has not been able to dispute these facts placed by the appellant, during the course of assessment proceedings, though accepted in appellate proceedings.”
Ld. AR has contended that the transactions are genuine and have been made at an arm’s length. He has further pointed out that the statements relied upon by the Ld. AO were subsequently retracted. In view of the evidences furnished by the assessee during the assessment and appellate proceedings, the genuineness of the transactions and the creditworthiness of the investor A.Y. 2012-13 M/s. Chopra Strips Ltd. companies have been proved and therefore the decision of the Ld. CIT(A) deserves to be upheld. Besides several decisions of the coordinate benches, Ld. AR has also placed reliance on the decision of the jurisdictional High Court in PCIT v/s Ami Industries (India) Pvt. Ltd., wherein it has been held that if assessee has furnished PAN, copies of IT return as well as bank account of the creditors to show that they had sufficient funds to make payments for share application money, then the assessee was not required to prove source of the source of investment.
We have heard the rival submissions and perused the material available on record. We find that the assessee discharged its primary onus by submitting details of the two companies as well as copies of their bank account. The statements given by the directors of these companies, based on which information was received by the AO, have subsequently been retracted. Ld. AO has not brought on record as to whether these investments have been treated as unexplained by the AO of PCM & USHI in their respective assessments.
In several decisions of the coordinate benches, it has been held that prior to 2013, there was no requirement for the assessee to establish the source of the source of share capital, premium, etc., as only from AY 2013-14, the requirement to prove source of the source (in cases of closely held companies) has been brought on the statute by way of amendment in Section 68 of the Act.
A.Y. 2012-13 M/s. Chopra Strips Ltd.
Thus, in the present case, which relates to AY 2012-13, the assessee having discharged the primary onus, Ld. AO ought to have brought some material on record to rebut the same. Under these facts and circumstances, we hold that Ld. CIT(A)’s order deleting the addition made on account of share application money of Rs. 2.60 cr. u/s 68 of the Act is justified and calls for no interference.