INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Assessee engaged in making accommodation entries -

The search and survey action was carried out on residential and business premises of S and V, a number of companies were found to have been running from the residential as well as business addresses relating to those two people whereas all the books of accounts and other relevant papers of such companies were found from the residence of S and V and nothing was found at the addresses mentioned in the statutory records of such companies. It was inferred from such fact that those companies were run by these two persons who are controlling such companies through dubious Directors/Principal Officers of such companies and a careful examination of seized material including the computer hard discs and tally data, which contain the books of accounts of such companies along with other important and confidential documents of such companies are established that these two persons were in actual control of such companies. It was further found that these two persons using such companies to provide accommodation entries to various persons/companies in lieu of cash received from the recipient the clients through RTGS/cheque transactions made in the name of such companies. As a matter of fact, it was found that no proper offices of such companies were in existence and neither the books of accounts were maintained nor were found at such addresses. In the assessment total accommodation entries, amounting to Rs. 4.6 crores relevant for the year under consideration, were taken by the assessee. Assessment under section 147/143(3) of the Act was accordingly complete with an addition of Rs. 4.6 crores under section 68 of the Act. The assessee had furnished before CIT(A) detailed information like copies of share application forms, copies of income tax returns of the share applicants, their bank statements reflecting the payments for purchase of shares, copies of resolution for purchase of shares, copies of their financial statements along with audit reports etc in discharge of its burden as envisaged under section 68 of the Act and on a perusal of such material CIT(A) concluded that the income tax particulars and bank statements of the share applicants established the identity, the Balance Sheet of these applicants prove the creditworthiness and documents filed by way of copies of bank statements etc establish the genuineness of the transaction. CIT(A) therefore, reached a conclusion that the assessee had discharged the burden of establishing the identity and the creditworthiness of the share applicants, and the genuineness of the transaction. He therefore deleted the additions made by the AO. Held: There was no clarification to the doubts in the mind of AO as to genuineness of identity and creditworthiness of share applicants or genuineness of transaction. Unless and until satisfactory answers are obtained to certain questions, it would be difficult to reach a positive conclusion as to the identity and creditworthiness of the share applicants and the genuineness of the transaction. Merely because the assessee was successful in completing the paperwork very meticulously or bringing into existence certain documents, the statutory obligation of the authorities does not get absolved merely because the assessee produced certain documents. It is incumbent on the authorities to verify the genuineness of such documents also in the light of the attending circumstances.

Applied:PCIT v. NRA Iron & Steel Pvt. Ltd. (2019) 103 taxmann.com 48 (SC) : 2019 TaxPub(DT) 1628 (SC) CIT v. NR Portfolio Pvt. Ltd. (2014) 42 taxmann.com 338 (Delhi) : 2014 TaxPub(DT) 0501 (Del-HC)

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