ITO vs. Shreedham Construction Pvt Ltd (ITAT Mumbai)

DATE: November 14, 2017 (Date of pronouncement)
DATE: November 30, 2017 (Date of publication)
AY: 2008-09
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S. 68 Bogus share capital: In the case of credit as share capital by corporate entity, whose existence is shown by its registration with Registrar of companies and its filing of tax returns, adverse conclusion is not justified merely because its directors are not produced personally before the AO by the assessee. The AO has to demonstrate with specific evidence that the assessee has in reality obtained accommodation entries by showing cash deposits linked to the investors

The assessee submitted that it received share application money from thirteen people during the relevant financial year. All the parties were genuine. The share application money was received by the assessee through account payee cheques or by RTGS. All payments were credited in the bank account of the assessee. The assessee allotted equity share of the company to the share applicants after passing a resolution. All the details of the share applicants along with their ITR acknowledgement, Audited accounts report, PAN cards and relevant extract of bank account of share applications were given to the assessing officer. The assessee proved the identity, capacity of the parties and the genuineness of the transaction. All the share applicants were responded to the notices issued by assessing officer under section 133(6) of the Income tax Act. All applicants complied and filed the required detailed required by assessing officer. The copy of the documents filed by assessee consisting copy of Income tax Returns for AY 2008-09, copy of PAN Cards, Copy of Audited Annual reports, copy of confirmation, copy of bank statements. Copies of all those documents are placed on record in the form of paper book (page No. 1 to 347). The assessing officer relied upon the third-party information and the statement recorded at the back of the assessee. The copy of statement of Praveen Kumar Jain allegedly recorded by the investigation party was not supplied to the assessee. The assessing officer not provided opportunity to the assessee for cross examination of Praveen Kumar Jain. Though, the assessee provided all necessary information to discharge its primary onus during the re-assessment proceeding. The assessing officer not refereed even a single document in his order while passing the assessment order. The assessing officer solely relied upon the statement of Praveen Kumar Jain. As per information of the assessee, said Praveen Kumar Jain had already retracted from the statement on 15.05.2014, before passing the assessment order. The assessee was not informed or disclosed or shared as what was the circumstantial evidence against the assessee. No inquiry was made against the assessee. The learned Commissioner (Appeals) considered the documentary evidence and the written submission furnished by assessee. On the submission of assessee, learned Commissioner (Appeals) referred the submission of assessee to the assessing officer for his comment in writing. The ld. assessing officer furnished his submission/ report before the learned Commissioner (Appeals). After considering the remand report of the assessing officer the learned Commissioner (Appeals) granted relief to the assessee.

In support of his submission the landed AR of the assessee relied upon the following decision;

(a) On the issue of cross examination;

(i) Kishin Chand Chellaram Vs CIT 125 ITR 713(SC)
(ii) Anand Ram Timber Industries Vs CCE ,Civil Appeal No.4228 of 2006 (SC)
(iii) H.R. Mehta Vs ACIT 378 ITR 561(Bom)
(iv) Sunil Prakash Vs ACIT ITA No. 6494/M/2014

(b) On addition under section 68 of Act

(i) CIT Vs Gagandeep Infrastructure (P) Ltd 349 ITR 680(Bombay),
(ii) CIT Vs Orchard industries Private Ltd ITA 1433 of 2014(Bom),
(iii) CIT Vs Laxman Industrial Resources Ltd ITA No. 169 of 2017(Del),
(iv) CIT Vs Supertech Diamonds Tools (P) limited 44 460 (Raj)
(v) CIT Vs Ashish International ITA No 4299 of 2009 (Bombay)
(vi) ACIT Vs Paradise Inland Shipping Private Ltd ITA No. 327/PNJ/2015
(vii) PCIT Vs Paradise Inland Shipping Private Ltd 84 58 (Bombay),
(viii) Anil C. Jain Vs ACIT ITA No. 369&370/M/2017,
(ix) Maruti Impex Vs JCIT ITA 3823/M/2014,
(x) Nathuram Premchand Vs CIT 49 ITR 561(All).

The CIT(A) allowed the appeal on the basis that:

(i) Section 68 casts the initial burden of proof on the assesse to show prima facie and to explain the nature and source of credit found in its books. When the statute places the burden of proof in income tax cases on the tax payer, it is understood to be only the initial burden. When the tax payer explains the credit by providing evidence of identity, confirmation and credit worthiness, the burden shifts on the revenue to show that the explanation is not satisfactory or incorrect. In the case of credit as share capital by corporate entity, whose existence is shown by its registration with Registrar of companies and its filing of tax returns, adverse conclusion is not justified merely because its directors are not produced personally before the assessing officer by the tax payer.

(ii) In the remand proceedings only the legal requirement was indicated that if any statements of third parties are to be relied upon, opportunity for cross examination must be provided. Further, instead of and other than generalities, the assessing officer was given an opportunity to put together appellant specific evidence justifying the addition.

(iii) It can be seen from the observation of the Assessing Officer that he has only referred to the information related to the outcome of search in the case of Shri Pravin Kumar Jain Group who were allegedly providing accommodation entries but the Ld. Assessing Officer has failed to demonstrate any such specific evidence that the appellant has in reality obtained any accommodation entries. There is no direct specific mention of the appellant by the director or key persons of the investor companies. There is no evidence of cash deposits linked to the investors. The assessing officer did not bring specific incriminating evidence linking the investor to the appellant. The only link is that the investors have invested in appellant company. That the appellant has given cash to the investors in lieu of entry is merely alleged but not demonstrated. Layering of transactions is alleged but not demonstrated. Opportunity for cross examination is not provided to the appellant. Papers/evidence found in the search action raises presumption but the same is available in the case of person searched but not in the case of third parties unless proved and corroborated. Similarly, retraction may be rejected as motivated, but the same can be considered only against the person who has retracted in his assessment. Such statement in the case of another person loses its sanctity unless opportunity of cross examination is granted and / or is corroborated with other evidences. When the investor company is filing regular return of income and there is a transaction through banking channel, no addition can be made without having any contrary or cogent evidences in possession.

HELD by the Tribunal dismissing the appeal of the Department:

In view of the above factual and legal discussion and considering the latest decision of Hon’ble Jurisdictional High Court in Pr CIT vs. Paradise Inland Shipping Pvt. Ltd (Bombay High Court) referred above, we have noted that the ld Commissioner (Appeals) passed the order after considering the entire material available before him. We have seen that the order passed by ld. Commissioner (Appeals) is reasoned one and does not require any further interference at our end. The facts of various decision relied by ld. DR in Rajmandir Estate Pvt Ltd (supra), in CIT Vs Jansamparak Advertising and Marketing (P) Ltd (supra) in CIT Vs N.R. Portfolio (supra), though is at variance on facts and is of non jurisdictional High Court. The decision of jurisdictional High Court in PCIT Vs Paradise Inland Shipping (P) Ltd (supra) is binding precedent on this Tribunal. In the result the grounds of appeal raised by the revenue is dismissed.

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