2019 (6) TMI 1465 - AT - Income Tax

Disallowance u/s 68 - Unexplained cash credit - proof of identity creditworthiness and genuineness of the transactions - main plank on which the AO made the addition was because the directors of the share subscribers did not turn up before him - HELD THAT - In this case on hand the assessee had discharged its onus to prove the identity creditworthiness and genuineness of the share applicants thereafter the onus shifted to AO to disprove the documents furnished by assessee cannot be brushed aside by the AO to draw adverse view cannot be countenanced. In the absence of any investigation much less gathering of evidence by the Assessing Officer we hold that an addition cannot be sustained merely based on inferences drawn by circumstance - we are inclined to uphold the order of the Ld. Commissioner of Income Tax (Appeals) To sum up section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case both the nature source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity creditworthiness and genuineness of the share applicants. The PAN details bank account statements audited financial statements and Income Tax acknowledgments were placed on AO s record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so the addition made by the AO is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above no addition was warranted under Section 68. Addition of commission - HELD THAT - When the assessee has filed the name of the commission agents their addresses their respective Income Tax acknowledgement commission bills bank statement balance sheet profit loss a/c ledger copy of each commission agent etc. which is found placed at from page 92 to 274 of the Paper Book and the Inspector deputed by the AO has found their changed address and when the payment of commission is through banking channel merely on surmises and conjectures the AO ought not to have disallowed Rs. 32, 19, 156/- out of total claim of Rs. 93, 76, 718/-. Merely because these Commission Agents are companies and is functioning from a premises next to the tax consultant of the assessee though raises suspicion however on the strength of the documents filed before us and the AO having not controverted theses documents as fabricated documents / false or without proper enquiry could not have disallowed the claim. It has to be kept in mind that suspicion how so ever strong cannot take the place of evidence. Moreover the impugned order of the ld. CIT(A) order cannot be held to be perverse order. In the light of the discussion and documents supra we confirm the order of the Ld. CIT(A) and dismiss this ground of appeal of Revenue.

Summary

Issues Involved:
1. Deletion of disallowance under Section 68 of the Income Tax Act.
2. Deletion of disallowance of commission expenses.

Issue-wise Detailed Analysis:

1. Deletion of disallowance under Section 68 of the Income Tax Act:

The Revenue's main grievance was against the CIT(A)'s action in deleting the disallowance of Rs. 1,00,00,000/- under Section 68 of the Income Tax Act. The AO noted that the assessee raised share capital of Rs. 6,00,000/- during the year ending 31.03.2012, with a total of 20,000 shares issued at a face value of Rs. 10/- and a share premium of Rs. 4,00,000/-. The AO issued notices under Section 131 of the Act to the shareholders, but none appeared. Consequently, the AO added Rs. 1 crore under Section 68, suspecting the infusion of the assessee's own money through shell companies. The CIT(A) deleted this addition, leading to the Revenue's appeal.

The Tribunal noted that the assessee is a legitimate business entity with significant turnover and profit, indicating it is not a "fly by night" company. The assessee provided comprehensive documentation, including confirmation letters, share application forms, bank statements, and audited balance sheets of the share subscribers, establishing their identity, creditworthiness, and genuineness of transactions. The AO's adverse inference was based solely on the non-appearance of directors, despite the substantial documentary evidence provided.

The Tribunal emphasized that the AO should have pursued further inquiries if dissatisfied with the source of funds, rather than solely relying on the non-appearance of directors. The Tribunal referred to various judicial precedents, including the Supreme Court's decision in CIT v. Smt. P. K. Noorjahan, to support that the unsatisfactoriness of the explanation does not automatically result in deeming the amount as income. The Tribunal concluded that the assessee had discharged its onus, and the AO's addition under Section 68 was unwarranted.

2. Deletion of disallowance of commission expenses:

The AO disallowed Rs. 32,19,156/- out of the total commission payment of Rs. 93,76,718/-, questioning the genuineness of services rendered by 12 commission agents. The AO's suspicion arose from an Inspector's report indicating that the agents were not found at the given address but were operating from a different location. Despite the assessee providing agreements, commission bills, bank statements, and other relevant documents, the AO disallowed the expenses.

The Tribunal noted that the assessee had provided comprehensive documentation, including agreements, commission bills, bank statements, and tax acknowledgments, to substantiate the commission payments. The Tribunal emphasized that the AO did not conduct any further inquiry or provide evidence to disprove the genuineness of the transactions. The Tribunal reiterated that suspicion alone cannot replace evidence and upheld the CIT(A)'s decision to delete the disallowance of commission expenses.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s deletion of the disallowance under Section 68 and the commission expenses. The Tribunal emphasized the importance of substantial evidence and proper inquiry, rejecting decisions based on mere suspicion or non-appearance of individuals. The judgment underscores the necessity for the AO to conduct thorough investigations and rely on concrete evidence before making additions under the Income Tax Act.