HC Explains 3 Criteria to judge if an entry is accommodation entry or not?

There can be no dispute that Section 68 applies equally to share application monies received by an assessee and, therefore, the burden is on the assessee to prove the nature and source thereof, to the satisfaction of the Assessing Officer. It involves three ingredients, namely, the proof regarding identity of the share applicants, their creditworthiness to purchase the shares and the genuineness of the transaction as a whole. The Tribunal failed to keep in mind these aspects of the matter and has chosen to dispose of the appeal on the limited question of the identity of the share holders. A Division Bench of this Court in the case of CIT vs. Nova Promoters and Finlease P. Ltd. (2012) 342 ITR 169 pointed out the circumstances in which the ratio of the Judgment of the Supreme Court in Lovely Export (supra) can be applied and the circumstances where the ratio cannot be applied. The present case is one where there is enough material in the possession of the Assessing Officer which warrants explanation from the assessee regarding the nature and source of the share application monies. There is precious little which has been done by the assessee in discharging its burden under the section. The Tribunal has failed to keep in view the broader picture and has taken a rather simplistic view of the matter, ignoring the factual aspects and surrounding circumstances present in the case. It should have dealt with the case in a wholesome manner dealing with the entire evidence relied upon and having regard to the report of the investigation wing, the manner in which entries were made in the bank accounts of the three companies, the statement of Pradeep Kumar Jindal and denial thereof by A.K.Kaul, as also the other surrounding circumstances of the case. We find that the appeal before the Tribunal has not been disposed of in all its aspects. We accordingly answer the substantial questions of law against the assessee, but in the circumstances remit the appeal to the file of the Tribunal for being disposed of afresh and in accordance with law. No costs.

HIGH COURT OF DELHI  

Date of Decision:  8^th November, 2012.

ITA No.497/2010

Commissioner Of Income Tax 

Versus

Youth Construction Pvt. Ltd.

ORDER