The Income Tax Appellate Tribunal (ITAT), Delhi Bench ruled that once a bogus purchase is sold than the entire amount cannot be added as Unexplained cash credits.
The assessee, Brij Resources Pvt. Ltd. is a private limited company and had filed its return of income on 20th September 2010 declaring the total income at Rs.7,380/-. The return was processed u/s 143(1) of the IT Act. Subsequently, information was 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. Information was received that the assessee M/s Brij Resources Pvt. Ltd., had received accommodation entry in the form of sale of investment of Rs.10 lakh during the F.Y. 2009-10 relevant to A.Y. 2010-11 from M/s Shalini Holdings Pvt. Ltd., a company controlled and managed by S.K. Jain Group of companies.
The AO asked the assessee to explain why the sale transaction of Rs.10 lakh should not be treated as non-genuine and taxed within the provisions of the Act. Since the assessee could not explain to the satisfaction of the AO regarding the above transaction, the AO, relying on various decisions, made an addition of Rs.10 lakh to the total income of the assessee u/s 68 of the Act. Similarly, the AO also made an addition of Rs.20,000/- being 2% commission on Rs.10 lakh for arranging the accommodation entry.
The assessee submitted that the assessee has sold the investment during the year which is appearing in the balance sheet at the beginning of the assessment year and the shares so sold are not in the nature of penny stock. He submitted that the nature of the transaction was not verified by the AO and he had not seen the movement of the assets from the balance sheet. Therefore, the entire reassessment proceedings have become null and void.
The assessee submitted that the investments were made in the preceding assessment year and were released during this year by the sale of the same. Therefore, provisions of section 68 cannot be applied to the facts of the present case.
On the other hand, the department heavily relied on the orders of the AO and the CIT(A). He submitted that the assessee has made only verbal arguments and there is no mention of the sale of an investment. Therefore, the contention of the assessee cannot be accepted. So far as the validity of reassessment proceedings is concerned, the CIT(A) while deciding the issue has given justifiable reasons as to why the reassessment proceedings are valid. He accordingly submitted that the order of the CIT(A) be upheld.
The coram of Accountant Member, R.K. Panda ruled that 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 the 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 a bogus purchase is sold than the entire amount cannot be added under section 68 of the Income Tax 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 ITAT observed.
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