ITAT Mumbai Deletes Rs. 46 Lakh Section 68 Addition: Accommodation Entry Provider's Statement Insufficient Without Inquiry into Documentary Evidence
Background and Overview
The Mumbai Bench of the Income Tax Appellate Tribunal rendered a significant ruling in the case of Sandesh Projects Pvt. Ltd. Vs ITO (ITAT Mumbai) pertaining to Assessment Year 2010-11, partially allowing the appeal of the assessee. The central issue revolved around an addition of Rs. 46 lakh made under Section 68 of the Income-tax Act, 1961, on account of share capital received from two entities — Casper Enterprises Pvt. Ltd. and Duke Business Pvt. Ltd. — each having subscribed to shares worth Rs. 23 lakh.
The Tribunal ultimately directed deletion of the Section 68 addition, concluding that the assessee had adequately discharged its initial statutory onus by placing substantial documentary evidence on record, while the Revenue had anchored its case almost exclusively on the statement of an accommodation entry provider without conducting any meaningful inquiry into the material produced by the assessee.
Facts of the Case
The assessee, a company engaged in real estate development, had originally filed its return of income on 17/9/2010 declaring total income of Rs. 30,550. The return was processed under Section 143(1) of the Income-tax Act, 1961 on 14/4/2011 without any scrutiny.
Subsequently, a notice under Section 148 was issued on 24/3/2015. The recorded reasons indicated that the Directorate General of Income Tax (Investigation), Mumbai, through a letter dated 7/7/2014, had shared information identifying the assessee as a beneficiary of accommodation entries. This information had emerged during a search conducted on an accommodation entry provider, and it was alleged that the two investor companies — Casper Enterprises Pvt. Ltd. and Duke Business Pvt. Ltd. — were operated by this very person and had channeled accommodation entries of Rs. 23 lakh each to the assessee in the guise of share capital investment.
The assessee responded to the reopening notice by treating its original return as the return filed in response thereto, requested reasons for reopening, raised objections on 10/8/2015, and had those objections disposed of on 27/10/2015.
What the Assessing Officer Did
During reassessment proceedings under Section 143(3) read with Section 147, the Assessing Officer required the assessee to substantiate the identity, creditworthiness, and genuineness of the transactions concerning the Rs. 46 lakh share capital.
In response, the assessee placed an extensive array of documents on record, including:
- Share application forms
- Certificates of investment
- Board resolutions of investor companies
- Investment confirmations
- Cheque numbers, bank details and branch information
- Affidavits sworn by directors of the investor companies
- Audited balance sheets and profit and loss accounts of investor companies
- Acknowledgements of income tax returns filed by the investors
- Confirmations from the investor companies
A further notice under Section 142(1) was issued on 19/2/2016, to which the assessee responded on 29/2/2016. The assessee also specifically:
- Requested the Assessing Officer to invoke powers under
Section 133(6)to verify documents independently - Disclosed that both investor companies had already sold their shareholding in the assessee to new shareholders — Surajbhan Rajkumar Pvt. Ltd. and Navkiran Developers Pvt. Ltd. — on 28/5/2010
- Sought cross-examination of the accommodation entry provider on whose statement the Assessing Officer was relying
- Pointed out that the accommodation entry provider had subsequently retracted his statement
Despite all this, the Assessing Officer concluded that while the identity of the two companies was established, their creditworthiness and the genuineness of the transactions remained unproved. Accordingly, Rs. 46 lakh was treated as unexplained credit under Section 68. Additionally, an amount of Rs. 69,000, representing 1.5% of Rs. 46 lakh as deemed unaccounted commission expenditure, was also added. The total assessed income was determined at Rs. 46,99,550 as per the assessment order dated 28/3/2016.
CIT(A) Order
The assessee preferred an appeal before the National Faceless Appeal Centre (NFAC), Delhi. The learned CIT(A), vide order dated 1/3/2024, partly allowed the appeal.