Non Response to Notice u/s 133(6) of Income Tax Act doesn't prove that entire Transaction is Bogus: ITAT [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) observed that no response to notice under Section 133(6) of Income Tax Act, 1961 that doesn't prove that entire transactions are bogus

An Assessee Company operating in the trading business, which filed its income tax return on March 31, 2009, declaring a total income of Rs. Nil. During the relevant year, the assessee issued 8,90,000 optionally convertible non-cumulative preference shares at Rs. 10/- each, with a premium of Rs. 90/-, to 15 parties, including 14 companies. These shares were subsequently redeemed by all parties in the assessment year 2009-10, i.e., two years after the initial issue. The filed return was duly processed and accepted under section 143(1) of Income Tax Act, 1961.

The counsel for the revenue Manoj Sinha referred to various remarks made by the Assessing Officer and contended that in this particular case, firstly, eight of the entities subscribing to preference shares are part of the Shri Praveen Kumar Jain group, known as established entry operators. Furthermore, notices sent via post to the companies under Section 133(6) of Income Tax Act, 1961 remained unanswered. Additionally, the assessee failed to provide any details or supporting documents to establish the identity, genuineness, and creditworthiness of the investors

Moreover, they did not produce the concerned parties during the assessment proceedings. Despite receiving money through banking channels, this does not inherently prove the authenticity of their transactions. Mere submission of information or details on the investors, along with copies of returns, bank statements, and share application letters, was insufficient and inconclusive in proving the correctness of the share application money transaction under these circumstances

The Assessing Officer did not provide any indication that at the time of allotment and subsequent redemption of the preference shares, the transaction was merely a paper transaction or found to be non-genuine. Instead, the AO relied solely on the information from the Directorate General of Income Tax ( DGIT ) indicating that 8 out of the 15 entities belonged to Shri Praveen Kumar Jain, and some companies, including one owned by Shri Praveen Kumar Jain, did not respond to notices under Section 133(6) of Income Tax Act, 1961.

However, the companies that did respond to the notices and provided all necessary details were not commented upon by the AO but were simply added to the assessment. Despite the assessee submitting copies of income tax returns, annual reports, balance sheets, bank statements, and confirmation letters from all investor companies to prove their genuineness, the AO did not examine or inquire into these documents.

The two member bench of the tribunal comprising Gadan Goyal ( Accountant member ) and Amit Shukla ( Judicial member ) observed the status of these companies and found that most of them are still active and compliant with statutory requirements, which undermines the claim that they were formed solely for accommodation entries. Even though some parties did not respond to notices under Section 133(6), of Income Tax Act, 1961, this does not prove that the entire transactions are fraudulent, especially when all other documents demonstrating the identity and creditworthiness of the parties have been provided and remain unexamined by the AO.

Furthermore, the inquiry into the funds available with these parties revealed that they have substantial funds, including profits, and continue their operations and activities to date. Therefore, it was unreasonable to label such corporate entities, which are still operational and compliant with statutory requirements, as bogus

 Consequently the appeal of the Revenue was dismissed.

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