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2022 (1) TMI 827 - AT - Income TaxAddition u/s 68 - unexplained share capital - addition of share money regarded as undisclosed income - discharge of onus by assessee or not - HELD THAT:- Assessee has discharged burden cast upon it under section 68 of the Income-tax Act, 1961 in respect of share capital received from share capital subscribers - AO has not disputed the fact that the assessee has furnished various evidences to prove identity of the subscribers. The assessee has filed name and address of subscribers, their PAN numbers, details of amount received and allotment made to them, return of allotment filed with Registrar of companies, company master data as available on website of Ministry of Corporate Affairs, Certification of Incorporation along with Memorandum and Articles of Association, ITR acknowledgement, audited financial statements, copies of relevant bank statements and confirmation letters from share applicants along with source of funds for investment in assessee’s company. The evidences filed by the assessee clearly satisfy the condition prescribed u/s.68 of the Act. The assessee not only proved identity, but also established credit worthiness of the parties which is evident from the fact that all subscriber companies financial statement shows source of income to explain investments made in Assessee Company which is further supported from the fact that all transfer of funds was through proper bank accounts. It is a well established legal principle of law by the decisions of various courts including the Hon’ble Supreme Court in the case of CIT vs. Stellar Investments Pvt. Ltd[1991 (4) TMI 100 - DELHI HIGH COURT] where it was clearly held that once alleged bogus shareholders details are provided to the AO then the AO is free to proceed to reopen the assessments of alleged bogus shareholders but sum received by the assessee cannot be treated as unexplained credit u/s.68 of the Act. In this case, although the assessee has filed various details, but the AO disregarded all evidences filed by the assessee and has made additions solely on the basis of investigation report without confronting those reports and statements recorded from those individuals to the assessee for rebuttal. Sole basis for the AO to draw an adverse inference against assessee is investigation report of Income Tax Department Kolkata and statements of certain persons recorded at the time of investigation - AO did not refer investigation report and its contents in his assessment order and further did not share copy of said report to the assessee. Further, even in statement of certain parties, no direct or indirect reference to the assessee. Nowhere the parties stated that the assessee is one of the beneficiaries of alleged transactions. In fact, the director of Assessee Company denied meeting any of the persons from whom statements were taken by the department. If you go through statement relied upon by the AO, except a general statement of modus operandi of entry providers, there is no direct or indirect reference to Assessee Company in any of statements. From the above, it is clear that the AO totally ignored genuine documents produced before him and passed the Assessment Order on a sweeping statement without any material evidence or fact on record. The AO has merely stated modus operandi of how, the transaction took place without considering the facts of the present case. AO instead passed a general statement on the lines of suspicion and surmises without any vital material evidence against the Assessee. From the above, it is very clear that the observations of the AO in his assessment order on the basis of report of investigation wing, Kolkata is a general observation of modus operandi of certain parties who are involved in alleged activity of entry providing, but it cannot be a conclusive evidence to draw an adverse inference against the assessee of having benefited from so called alleged hawala activity. No doubt, an alleged scam may have taken place, but, it has to be seen whether the assessee is part of an alleged activity and he had any direct or indirect role in alleged scam. Unless, evidences in the possession of the AO directly or indirectly linked to the assessee, it is difficult to implicate the assessee in the alleged scam AO has made additions solely on the basis investigation report of Income tax Department, Kolkata without providing copy of said report to the assessee for its rebuttal - not allowing the assessee to cross-examine the witnesses by the adjudicating authority, though the statements and those witnesses were made the basis of the impugned order is a serious flaw, which makes the order nullity in, as much as, it amount to violation of principle of natural justice, because of which, the assessee was adversely affected. In this case, the Director of assessee Company Shri Pankaj Agarwal, in his statement recorded during the course of assessment proceedings, has categorically denied that he does not know any persons, whose statements were relied upon by the AO and further stated before the AO that he wants to cross examine those persons whose statements is basis for the addition. However, the AO neither made available copy of statements nor allowed director of the assessee Company to avail cross examination of those witnesses. In our considered view, this a clear case of violation of principles of natural justice in view of the decisions of Andaman Timber Industries Ltd [2015 (10) TMI 442 - SUPREME COURT] and thus, on this count alone the additions made by the AO cannot be sustained. Even though there were circumstances leading to suspicion, yet having taken an action u/s.132 and enquiries made in the assessment proceedings, the assessing authority had not brought any positive material or evidence to indicate that the share application money as such represented assessee’s own undisclosed money brought back in the garb of share capital. Merely because of his subjective satisfaction that the source of availability of money with the shareholder or their creditworthiness were not established, the AO could not treat the genuinely raised share capital as deemed income u/s.68 - Decided in favour of assessee.
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