ITO, NEW DELHI vs. M/S I.P. INDIA, NEW DELHI

The grounds of appeal are as under:-

During the year under consideration the assessee company raised share application money of Rs.4,75,35/-. The assessee company was asked to file details such as share applicants giving their name, address, PAN, source of their investments, bank statements by the Assessing Officer. The assessee was also asked to establish the share applicants creditworthiness and genuineness of their transactions. As per the details filed by the assessee, the share application money was raised from 47 parties. Necessary information u/s 133(6) was called for independently. For this purpose letters were issued on 25/7/2007 to 24 parties out of total 47 parties. The information u/s 133(6) was not received in 9 cases out of 24. The assessee company was show cause to explain as to why the transactions entered with these parties are not to be treated only paper transactions. Accordingly the Assessing Officer included the income of the assessee company as per the provisions of Section 68 of the Act, and 8 concerns parties were held to be non genuine and amount of Rs.64,50,000/- was added on account of credit entries whose nature, genuineness and creditworthiness could not be proved.

The assessee filed appeal before the CIT(A). The CIT(A) held that in view of the various judicial pronouncements the additions of Rs.64,50,000/- made by the Assessing Officer is not justified because the assessee had discharged prima facie burden of proof and A.O cannot summarily reject all the documents when deeper investigation brings up specific adverse material. Thus, the CIT(A) deleted the addition.

The Ld. DR submits that the Assessing Officer has made every attempt to confirmed the details of the concerned parties by issuing Section 133 (6) notices for verifying the genuineness of share applicants. The Ld. DR further submitted that the Assessing Officer has categorically mentioned in the Assessment Order that the assessee did not produce sufficient documentary evidence to prove the genuineness of the alleged share holders as the assessee had only filed confirmation details of PAN and IT returns and affidavits of the investors which do not prove the identity & genuineness of the transaction of share application and creditworthiness. The Ld. DR relied on the Jurisdictional High Court judgment in case of CIT Vs. MAF Academy Pvt. Ltd. 214 42 Taxman.com 377 wherein it is held that the Court or Tribunal should be convinced about the identity, creditworthiness and genuineness of the transactions. The onus to prove the three factum is on the assessee as the facts are within the personal knowledge of the assessee. Mere production of details of PAN numbers or income tax returns may not be sufficient though the production of details such as PAN Numbers or income returns of income may indicate towards completion of paper work or documentation, but genuineness, creditworthiness, identity of investment and the information of investors are deeper than mere completion of paper work or documentation.

The Ld. AR submitted that the CIT(A) has given categorical finding that in the assessment order the Assessing Officer called information from the parties to whom notice u/s 131 were issued and the said information was received by the Assessing Officer. The inspector of the Revenue submitted the report that no company exist at the given address. The CIT(A) further observed that the Assessing Officer has stopped his enquiry at this stage and did not made any attempt for further investigation of those concerned companies. The income tax details were made available by the assessee to the Assessing Officer at the time of Assessment Proceedings. In addition to this, the CIT(A) also observed that the Assessing Officer has not specifically brought on record any material to establish that the amount received by the assessee was actually received as accommodation entries. The documents including PAN confirmations, copy of IT returns, details of bank accounts, affidavits of directors have not been controverted by the Assessing Officer. Thus, the assessee has established the genuineness, creditworthiness, identity of investment. The assessee has heavily relied on the judgment of the Apex Court in case of Lovely Exports 216 CTR 195.

We have heard both the sides and perused the material available on record. The Ld. DR relied upon the Jurisdictional High Court judgment in case of CIT Vs. MAF Academy Pvt. Ltd. (2014) 42 Taxman.com 377 wherein it is held that the Court or Tribunal should be convinced about the identity, creditworthiness and genuineness of the transactions. The onus to prove the three factum is on the assessee as the facts are within the personal knowledge of the assessee. Mere production of details of PAN numbers or income tax returns may not be sufficient though the production of details such as PAN Numbers or income returns of income may indicate towards completion of paper work or documentation, but genuineness, creditworthiness, identity of investment and the information of investors are deeper than mere completion of paper work or documentation. In this case, letters were issued on 25/7/2007 to 24 parties out of total 47 parties. The information u/s 133(6) was received in 9 cases out of 24. The CIT(A) in his order observed that the Assessing Officer has not investigated. But the identity, genuineness and creditworthiness was not fully established by the Assessee before the Assessing Officer as well as before the CIT(A). Thus, the CIT(A) was not correct in deleting the disallowance u/s 68 made by the Assessing Officer without going into the three details of identity, genuineness and creditworthiness of the share applicants. The ratio laid down by the Hon’ble Apex Court in the case of Lovely Export is not applicable in the present case as in this case the identity, genuineness and creditworthiness of the share applicant was not fully established by the assessee. Merely presenting the documents will not amount to establish the transactions as genuine. The creditworthiness or financial strength of the creditor/subscriber was not established by the assessee in the present case. The CIT(A) has totally ignored these three components while allowing the appeal of the assessee. Therefore, the CIT(A) order is set aside.

In result, appeal of the Revenue is allowed.