Share Application Money – Primary burden is on AO to show that same is unexplained cash credit

Even if the reopening is sustained, the primary burden that income has escaped assessment is on the shoulder of the assessing officer and after discharging this burden only, the onus shifts to the shoulder of the assessee.

Even if the reopening is sustained, the primary burden that income has escaped assessment is on the shoulder of the assessing officer and after discharging this burden only, the onus shifts to the shoulder of the assessee. We find that nothing has been brought on record by the assessing officer to substantiate his serious allegation that these two entries are accommodation entries which was the sole ground and basis for reopening. Reliance is placed on CIT Vs. Pradeep Kumar Gupta(Delhi)“303ITR95 (Delhi), in which it was held that when section 147 and 148 of the Act was resorted to, the AO must first discharge the burden of showing that income had escaped assessment. And it was only thereafter that the assessee had to provide all the answers. However in the instant case, the assessee had produced the aforesaid documents before the authorities below and by doing so, the assessee has discharged the obligation to explain the transaction with it; and thereafter, if the Assessing Officer was still not satisfied with the aforesaid documents & explanation of the assessee, he should have resorted to section 131 and other provisions in the Act to investigate and check the veracity of the documents; and in the absence of it, we are afraid we cannot uphold the order impugned before us.

It may be noted that a cloud of suspicion and doubts can be raised by stating that lot of cash was deposited in the accounts of M/s Gupta and Gupta and immediately thereafter cheque transaction could be evident from the side of M/s Gupta and Gupta to some other person/ legal entity. However, it may be taken note that a judicially trained mind will search from the said cloud brought before it, relevant admissible evidences if any from the records before it, to see whether the said evidence support the transaction as alleged by the AO which is under consideration before it, and not get swayed by other irrelevant materials which comes on record. Here we find in the case of CIT Vs. Ram Narain Goel 224 ITR 180 Punjab and Haryana High Court observed that suspicion howsoever cannot take the place of evidence or proof.

In the case of CIT vs. Gangeshwari Metal P.Ltd. in ITA no. 597j2012 judgement dated 21.1.2013, the Hon’ble High Court after considering the decisions in the case of Nova Promoters and Finlease Pvt. Ltd. 342 ITR 169 and judgement in the case of CIT vs. Lovely Exports 319 ITR (Sat 5)(5. C) held as follows:-

“As can be seen from the above extract, two types of cases have been indicated. One in which the Assessing Officer carries out the exercise which is required in law and the other in which the Assessing Officer ‘sits back with folded hands’ till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the Assessing Officer after noting the facts, merely rejected the same. This would be apparent from the observations of the Assessing Officer in the assessment order to the following effect:-

”Investigation made by the Investigation Wing of the department clearly showed that this was nothing but a sham transaction of accommodation entry. The assessee was asked to explain as to why the said amount of Rs. 1,1 1,50,000/- may not be added to its income. In response, the assessee has submitted that there is no such credit in the books of the assessee. Rather, the assessee company has received the share application money for allotment of its share. It was stated that the actual amount received was Rs.55,50,000/- and not Rs. 1,1 1,50,000/- as mentioned in the notice. The assessee has furnished details of such receipts and the contention of the assessee in respect of the amount is found correct. As such the unexplained amount is to be taken at Rs.55,50,000/-. The assessee has further tries to explain the source of this amount of Rs.55,50,000/- by furnishing copies of share application money, balance4 sheet etc. of the parties mentioned above and asserted that the question of addition in the income of the assessee does not arise. This explanation of the assessee has been duly considered and found not acceptable. This entry remains unexplained in the hands of the assessee as has been arrived by the Investigation wing of the department. As such entries of Rs.5~50/000/- received by the assessee are treated as an unexplained cash credit in the hands of the assessee and added to its income. Since I am satisfied that the assessee has furnished inaccurate particulars of its income/ penalty proceedings under Section 271(1)(c) are being initiated separately.

The facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in the former category and that is why this Court decided in favour of the revenue in that case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). There was a clear lack of inquiry on the part of the Assessing Officer once the assessee had furnished all the material which we have already referred to above. In such an eventuality no addition can be made under Section 68 of the Income Tax Act 1961.

Consequently, the question is answered in the negative. The decision of the Tribunal is correct in law”

The case on hand clearly falls in the category where there is lack of enquiry on the part of the A. O. as in the case of Ganjeshwari Metals (supra).

b) In the case of Finlease Pvt Ltd. 342 ITR 169 (supra) in ITA 232!2012 judgement dt. 22.11.2012 at para 6 to 8! it was held as follows.

“6. This Court has considered the submissions of the parties. In this case the discussion by the Commissioner of Income Tax (Appeals) would reveal that the assessee has filed documents including certified copies issued by the ROC in relation to the share application affidavits of the directors, form 2 filed with the ROC by such applicants confirmations by the applicant for company’s shares, certificates by auditors etc. Unfortunately, the Assessing Officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahes Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the Assessing Officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr.Mahesh Garg that the income sought to be added fell within the description ofS.68 of the Income Tax Act 1961.

Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra).

The decision in this case is based on the peculiar facts which attract the ratio of Lovely Exports (supra). Where the assessee adduces evidence in support of the share application monies, it is open to the Assessing Officer to examine it and reject it on tenable grounds. In case he wishes to rely on the report of the investigation authorities, some meaningful inquiry ought to be conducted by him to establish a link between the assessee and the alleged hawala operators, such a link was shown to be present in the case of Nova Promoters & Finlease (P) Ltd. (supra) relied upon by the revenue. We are therefore not to be understood to convey that in all cases of share capital added under Section 68, the ratio of Lovely Exports (supra) is attracted, irrespective of the facts, evidence and material. “

Applying the propositions laid down in these case laws to the facts of this case, we are not inclined to uphold the order of the Ld. Commissioner of Income Tax (Appeals) and therefore we set-aside the impugned order. The arguments of the Ld. DR as to the date of execution of affidavit, confirmation letters etc. are no doubt circumstances to be considered. But, 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.

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