No Addition of Share Application Money be made if enquiries conducted have not been confronted to Assessees: ITAT deletes addition of Rs. 36 Cr against Bhushan Group [Read Order]

In a major relief to Sur Buildcon, BBN Transportation, and Goldstar Cement, the Income Tax Appellate Tribunal (ITAT), Delhi bench while deleting the addition of Rs. 36 Crores ruled that the no addition of share application money be made if inquiries conducted have not been confronted to assessees

The assessees, Sur Buildcon, BBN Transportation, and Goldstar Cement filed their objections against the issuance of notice u/s 148 of the Act by citing the non-existence of any live link or causal nexus between the information on record and the reason to believe that the income of the assessees had escaped assessment. The objections of the assessees were, however, rejected by the AO. During the course of reassessment proceedings, certain documents evidencing the identity, genuineness, and creditworthiness of the share capital and share premium received were furnished before the AO by the assessees in response to the notice(s) issued under section 142(1) of the Act. These documents were in the nature of confirmations, bank accounts, and ITR Acknowledgments of the investors concerned.

The A.O., thereafter, identically observed in the cases of all three assesses that “the creditworthiness of the investors is not established as all the investors are showing nominal income. Neither the investor company and nor the assessee company has produced any proof to substantiate the creditworthiness of the investors (for the example balance sheet of the investor company). The genuineness of the transaction is also in doubt.”

The assessee submitted that all the documents establishing the identity, genuineness, and creditworthiness of the transactions had been submitted before the A.O. who has failed to refute them in any manner. It was submitted that is now settled law that pre-April 1, 2013, the assessees are required to only prove the identity, genuineness, and creditworthiness of the transactions to discharge their initial burden on proof under Section 68. It has also been argued that there is no requirement in law for the assessees to prove the source of source of the investors.

On the other hand, the department contended that the assesses must prove the ingredients of identity, genuineness, and creditworthiness of the credit entries to the satisfaction of the A.O. and, where, if any doubt on the genuineness of the investor companies exits in the mind of the A.O., then even the source of the source must be established, we observe that the critical difference here is that these Inspector Reports have remained un- confronted to the assessees.

The coram of Accountant Member Prashant Maharishi and Judicial Member Sudhanshu Shrivastava observed that the identity, genuineness of the transaction and the creditworthiness of the investor companies have been proved by the assessees and they have successfully discharged the initial burden of proof that vested on them under section 68 of the Act. The A.O. has nowhere, in the Assessment Orders, disputed this information/material submitted by the assessees and has merely sought to rely on the Reports prepared by the Inspectors.

The ITAT deleted the addition of Rs.9,40,00,000; Rs. 9,10,00,000; and 18,00,00,000 against the BBN Transportation Pvt. ltd, Goldstar Cement Pvt. Ltd., and Sur Buildcon Pvt. Ltd. respectively as it was against the principle of natural justice.

“Since the results of the inquiries conducted by the AO u/s 142(2) of the Act have not been confronted to the assessees, we are inclined to agree with the Ld. A.R. that there has been a violation of the Principle(s) of Natural Justice implied within Section 142 (2) of the Act and such statutory non-compliance vitiates the entire assessment proceedings, therefore, rendering it to be null and void,” the ITAT said.

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