The ITAT, New Delhi in ACIT v. Surya Global Steel Tubes Ltd [ITA No. 4778/Del/2016 dated May 09, 2023] has held that no income tax additions can be made when source of investment made against the share capital/ premium/ warrants, stands explained, as assessee and investor companies, have substantiated the same by furnishing evidences and proved the Identity, genuineness of transactions and creditworthiness of investor companies.

Facts:

M/s Surya Global Steel Tubes Ltd. (“the Respondent”) is a group company of Surya Roshani Group. Search and seizure took place at Surya Roshan Group on October 30, 2012 under section 132 of the Income tax Act, 1961 (“the IT Act”). The Respondent received share application money from eight different entities in Assessment Year 2010-2011, 2012-2013 and 2013-2014.

The Assessing Officer (“the AO”) added INR 5,50,00,000 on account of unexplained cash credit under section 68 of the IT Act based on the statements of Entry Operator, Current director, Former Director and the information gathered by the Inspector, that the entities were not existing at the mentioned address and the Respondent did not produce the Directors for examination however, solely filed documentary evidences.

Aggrieved by the additions made by the AO, the Respondent filed an appeal before the Commissioner of Income Tax (Appeal) (“the CIT(A)”) who deleted the addition made by the AO on the grounds that no document relating to alleged unexplained share capital were found and seized, which reveals that the Respondent has received accommodation entries in the form of share capital/ premium / warrants and the investment in the share capital / premium / warrants, has been made by investor companies, who are genuine. The bank accounts of the investor companies were closed earlier and therefore, the adverse inference drawn by the AO in the subsequent period under consideration were not correct.

Aggrieved by the Order of the CIT(A), the Revenue Department (“the Appellant”) filed an appeal before the ITAT.

Issue:

Whether the CIT(A) was correct in deleting the addition made by the AO?

Held:

The ITAT, New Delhi in [ITA No. 4778/Del/2016] held as under:

• Observed that, the Respondent was assessed under section 153A of the IT Act as a searched case, but no document or incriminating evidence were found during the search or subsequent proceedings to support the claim that the Appellant received accommodation entries from alleged investor companies. The AO failed to provide any convincing evidence to establish the nexus between the Respondent and the investor companies.
• Opined that, provisions under section 68 of the IT Act, is not attracted in the case of the Respondent as investment by investor companies, is considered as explained.
• Held that the source of investment made against the share capital/ premium/ warrants, stands explained, as the Respondent and investor companies, have substantiated the same by furnishing evidences and proved the identity, genuineness of transactions and creditworthiness of investor companies.

(Author can be reached at [email protected])

DISCLAIMER: The views expressed are strictly of the author and A2Z Taxcorp LLP. The contents of this article are solely for informational purpose and for the reader’s personal non-commercial use. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon. Further, no portion of our article or newsletter should be used for any purpose(s) unless authorized in writing and we reserve a legal right for any infringement on usage of our article or newsletter without prior permission.