The Delhi bench of the Income Tax Appellate Tribunal (ITAT), Delhi bench has held that once bogus purchase is sold than the entire amount cannot be added under section 68 of the Income Tax Act, 1961.
The appellant-assessee, a private limited company filed its original return for the relevant assessment year. However, the IT department processed the same under section 143(1) of the Income Tax Act, 1961 on the basis of the information received from the Investigation Wing that during the course of search and survey action in the case of Jain brothers, namely, Virendra Jain and Surendra Kumar Jain, it was found that they were engaged in the business of providing accommodation entries by providing RTGS/cheques/PO/DD in lieu of cash to a large number of beneficiary companies floated and controlled by them. Accordingly, an addition under section 68 of the Act was made against the assessee.
Accountant Member R K Panda observed that the assessee, during the impugned assessment year, has sold the shares of M/s Shree Govind Devji Biogenic Pvt. Ltd. to M/s Sunny Cast and Forge Pvt. Ltd. for an amount of.10 lakhs.
“The assessee, during the year, has sold the investment and has received the amount by cheque and, therefore, in my opinion, provisions of section 68 of the Act cannot be applied to the realization of investment which was duly reflected in the balance sheet of the assessee company in the preceding assessment year. In my opinion, if the sale of shares is bogus, then the purchase of the same shares is also bogus. If the case of the Revenue is that assessee’s own money has come back to the assessee in the shape of accommodation entry, then, the money of the assessee had gone in the preceding year in the shape of purchase of the shares which were sold during the year. No action appears to have been taken in the preceding assessment year treating the purchase of the shares as bogus. Therefore, once such bogus purchase is sold then the entire amount, in my opinion, cannot be added u/s 68 of the IT Act, 1961. I, therefore, set aside the order of the CIT(A) on this issue and direct the AO to delete the addition. Similarly, the commission of Rs.20,000/- disallowed by the AO and sustained by the CIT(A) is also deleted in view of the discussion above. The grounds raised by the assessee challenging the addition on merit are accordingly allowed,” the Tribunal said.
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