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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI C.N. PRASAD, JM & SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R
Per Manoj Kumar Aggarwal (Accountant Member)
The captioned appeal by assessee for Assessment Year [AY] 2006-07 assails the order Ld. Commissioner of Income Tax (Appeals)-39 [CIT(A)], Mumbai dated M/s. Kainya & Associates Assessment Year 2006-2007 22/08/2014 confirming addition of Rs.74 Lacs u/s 68 and also confirming another addition of Rs.74,000/- being the commission payment estimated by Assessing Officer [AO].
Briefly stated, the assessee is a corporate assessee engaged in the business of dealing in high value imported and Indian house fitting items. It filed its return of income on 28/10/2006 declaring total income at Rs.9,72,111/- which was subsequently revised on 28/03/2007 at Rs.13,96,200/-. The return was picked up for scrutiny assessment u/s 143(3) consequent to search & seizure operation on 18/01/2006 u/s 132 & u/s 133A of the Income Tax Act on group concerns. The assessee was found to be in receipt of certain ‘Share Application money’ from various parties which were subjected to verification by Assessing Officer [AO]. However, the assessee failed to produce following parties to confirm the transactions-:- No. Name No. of Shares Amount Paid 1. M/s Maradona Holdings Pvt. Ltd. 40,000 24,00,000/- 2. M.s Mahashakti Vyapar Pvt. Ltd 40,000 24,00,000/- 3. M/s Shreedeb Commercial Private Ltd. 40,000 24,00000 4. M/s Dakcon Impex Pvt. Ltd. 3,333 2,00,000 Total 74,00,000/- The above parties were subject to survey operations u/s 133A at Kolkatta where the directors of party listed at Serial Nos. 1 & 4 accepted indulging in accommodation entries whereas summons issued u/s 131 to party Nos. 2 & 3 were returned back as the parties were not found at the registered addresses. The assessee could not produce these parties for verification although he submitted the relevant documents like financial statements, Bank statements, and acknowledgement of Income Tax Returns etc. of the above four parties to prove the genuineness of the transactions. Resultantly, AO treated the same as accommodation entries and added the same to the income of assessee u/s 68. Further, AO assumed estimated commission payment on these M/s. Kainya & Associates Assessment Year 2006-2007 transactions paid by assessee @ 1% which amounted to Rs.74,000/- and the same was also added to the income of the assessee. Thus, total income was determined at Rs. 89,34,126/- vide AO order dated 31/12/2007.
The assessee assailed the same unsuccessfully before Ld. CIT(A). The assessee contended that all relevant details have been filed by him including Name, Address of the parties, Income Tax e-return acknowledgement, respective bank statements etc and hence the assessee has discharged initial onus of proving identity, genuineness and creditworthiness of the transactions. No opportunity to rebut the statement of directors of impugned companies by way of cross examination was provided to the assessee. Accordingly, the matter was remanded to the AO to furnish copies of statements / relevant documents relied upon by him but it was found that no such statements were available rather only the appraisal report of the investigation wing of the department was available in the record. Nevertheless, on merits, CIT(A) after examining the relevant documents including pattern of bank deposits and return of income filed by these parties, was not convinced with the reply of the assessee and he upheld the action of AO and confirmed the impugned additions. Aggrieved, the assessee is in appeal before us. A paper book inter-alia containing Income Tax Returns of the impugned 4. parties, their financial statements with Audit Report, Confirmation of Investment, Bank Statement, Board Resolution and Memorandum & Articles of association etc. has been placed before us. The Ld. Senior Counsel for Assessee [AR] has contended that the additions have been made merely on suspicion. The AO noted that the assessee failed to produce the parties before him to confirm the transactions, which is factually incorrect. Rather all the parties presented themselves and confirmed the transactions before the AO and filed respective replies as required from time to time.
M/s. Kainya & Associates Assessment Year 2006-2007 It is also factually incorrect that transactions were provided after making cash deposits in the account of the four parties rather all the deposits in these accounts were by way of bank transfers only. The authorities could not provide the assessee the copies of relevant statement / documents which formed the very basis of impugned additions against the principle of natural justice. The assessee has duly discharged the initial onus of proving identity, genuineness and creditworthiness of the parties and additions could not be made on mere suspicion. Further, by placing return of allotment before us, it has been contended that these are not accommodation / bogus entries as shares have subsequently been allotted to these parties. Therefore, the onus is on the department to disprove the transaction with cogent material. The same issue of receipt of share application money from ‘M/s Dakcon Impex Private Limited’ arose in assessee’s own case for 2005-2006 and the same was decided in favour of the assessee by Mumbai Tribunal. Reliance has been placed on following judgments to support various contentions:- i. Andaman Timber Industries Vs CCE 2015 281 CTR 214 (Apex court judgment to contend that violation of natural justice can result into nullity of order) ii CIT Vs. Lovely Exports Pvt. Ltd. 2008 216 CTR 195 (Apex court judgment to contend that share application money cannot be regarded as undisclosed income of the assessee company u/s 68 iii CIT V K.C.Pipes Pvt Ltd. 2016 386 ITR 532 (P & H High Court to contend that no addition is warranted when shares are actually allotted) iv DCIT Vs Rohini Builders 2002 256 ITR 360 (Gujarat High court to contend that the assessee is not required to prove the source of source. The onus of assessee was duly discharged after furnishing all the primary evidences to prove the genuiness of loan transactions. v. Umang Travels & Tradelinks Pvt Ltd V ITO (ITA No. 3571/M/2012 Mumbai Tribunal order dated 08/07/2015) & vi. M/s Orchid Industries Pvt. Ltd. V. ADCIT (ITA No. 1867/Mum/2012 order dated 07/02/2014 to contend that when necessary confirmations are produced by assessee, additions could not be made)
M/s. Kainya & Associates Assessment Year 2006-2007 5. Per contra, Ld. DR has contended that the transactions are accommodation in nature. The impugned parties have deposited assessee’s cash in their respective bank account and thereafter provided these accommodation entries. The deposit of cash has clear nexus with the accommodation entries. These parties are paying negligible tax to the government and all tax returns have been filed belatedly. Thus, by placing reliance on the stand of lower authorities, he justified the impugned additions.
We have heard the rival contentions and perused the material available on record and cited case laws. The short question before us is that whether the facts and circumstances call for impugned disallowance u/s 68 or not. A perusal of the return of share allotment filed by assessee reveals that the shares, in fact, have been allotted to these parties subsequent to receipt of share application money. A copy of Board Resolution dated 22/03/2007 making share allotment in favor of various parties including above four parties has been filed. Also, ROC Form 5 qua increase in authorized share capital and Form 2 qua ‘Share Allotment Return’ have been placed before us. The revenue could not produce the alleged statements / documents relied upon by it to justify impugned additions which violate the principle of natural justice. Further, relevant documents in the shape of Bank Statement, Income Tax Returns etc. have been filed by the assessee which prima-facie suggests discharge of initial onus on the part of the assessee. Nothing adverse is on record against assessee except the alleged statement of the third parties. The above four parties at several places confirmed the impugned transactions before lower authorities. Further, Tribunal in in assessee’s own case for AY 2005-06 has decided the issue in favor of assessee. It is to be noted that in AY 2005-06, share application was received from a party, which is also a common party in the present dispute. Further, the flow of commission between the parties is hypothetically assumed by AO without M/s. Kainya & Associates Assessment Year 2006-2007 bringing anything on record to substantiate the same. The cited case laws fully supports the various contentions of the assessee. Therefore, on the facts and circumstances of the case, we are inclined to delete the impugned additions of Rs.74.74 Lacs and allow the appeal of the assessee.
In Nutshell, the appeal of the assessee is allowed. प�रणामतः �नधा�रती क� अपील� �वीकृत क� जाती है । Order pronounced in the open court on 2nd January, 2017.