2011 (6) TMI 850 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition made on account of share application money u/s 68.
2. Deletion of addition made on account of commission u/s 68.
3. Application of the Supreme Court judgment in the case of Lovely Exports (P) Ltd.
4. Deletion of addition on account of contribution in AOP on protective basis.

Summary:

1. Deletion of Addition on Account of Share Application Money u/s 68:
The Revenue challenged the deletion of additions made on account of share application money for assessment years 2003-04 and 2004-05. The AO initiated proceedings u/s 147 based on information from the investigation wing that the assessee had taken accommodation entries disguised as share application money. Summons issued to verify the genuineness and creditworthiness of the companies were returned with remarks "No such firm." The AO treated the transactions as non-genuine and made additions u/s 68. The assessee provided documentary evidence, including share application forms, confirmations, and PAN details. The CIT (A) deleted the additions, relying on the Supreme Court's decision in Lovely Exports (P) Ltd., stating that the AO did not conduct any enquiry to prove that the money was the assessee's undisclosed income. The Tribunal upheld the CIT (A)'s decision, confirming that the identity of the shareholders was established and the AO could not make additions merely based on the investigation wing's report.

2. Deletion of Addition on Account of Commission u/s 68:
The AO added amounts as commission allegedly paid to entry operators. Since the Tribunal confirmed the deletion of share application money, the addition of commission, being consequential, was also deleted. The CIT (A) was justified in deleting the addition on account of commission for obtaining accommodation entries.

3. Application of the Supreme Court Judgment in Lovely Exports (P) Ltd.:
The Revenue argued that the CIT (A) erred in applying the judgment of the Supreme Court in Lovely Exports (P) Ltd., which they claimed was not applicable in cases involving mechanisms to introduce unaccounted money through accommodation entries. The Tribunal, however, upheld the CIT (A)'s reliance on the Lovely Exports case, stating that the AO did not provide any evidence to suggest that the money received was the assessee's undisclosed income.

4. Deletion of Addition on Account of Contribution in AOP on Protective Basis:
For assessment year 2004-05, the AO made a protective addition of Rs. 40,00,000/- on account of contribution in AOP. The assessee explained that the funds were invested through normal banking channels and provided evidence of the transactions. The CIT (A) noted that the source of the Rs. 40,00,000/- was from share capital received from various parties and routed through banking channels. The Tribunal upheld the CIT (A)'s decision, confirming that the source of deposit was proved, and no protective addition could be made.

Conclusion:
Both appeals filed by the Revenue were dismissed, and the order pronounced in the open court on 10th June 2011 confirmed the deletion of additions made by the AO.