Mere Suspicion of Shell Entities Not Enough to Sustain Rs. 3.59 Cr Addition, Rules ITAT

The assessee, Carrisa Investments Pvt. Ltd., filed its return for A.Y. 2014-15 declaring a loss. Based on departmental information, reassessment proceedings were initiated alleging that the assessee had entered into bogus transactions with M/s Bansal Traders and had received Rs. 2.79 crore, along with Rs. 80 lakh allegedly routed through M/s Vertex Dealcom Pvt. Ltd., described as shell entities. The Assessing Officer completed the assessment ex parte and made an addition of Rs. 3,59,28,733 under Section 69A, primarily on the ground that the assessee failed to furnish its DEMAT account reflecting purchase and transfer of shares.

Before the CIT(A), the assessee submitted that the amounts were advances received against sale of shares of Gujarat Heavy Chemicals Limited (GHCL), which were sold in the subsequent year. The DEMAT statement was filed as additional evidence under Rule 46A, explaining that it could not be produced earlier due to non-availability of old records and delay by the broker. The CIT(A) admitted the evidence, obtained a remand report from the AO, and found that the DEMAT entries matched the ledger accounts and sale bills. Thus, the addition was deleted.

Issue Raised: Whether the CIT(A) was justified in admitting the DEMAT statement as additional evidence under Rule 46A, and deleting the addition of Rs. 3.59 crore made under Section 69A on account of alleged unexplained credits from entities treated as shell companies.

HC’s Ruling: The Income Tax Appellate Tribunal upheld the order of the CIT(A) and dismissed the Revenue’s appeal. The Tribunal observed that the assessee had shown sufficient cause for non-production of the DEMAT statement during assessment proceedings, and the same had been duly forwarded to the AO for verification in remand proceedings. Thus, the conditions of Rule 46A were satisfied.

The Tribunal noted that the DEMAT statement matched the quantity of shares reflected in the ledger and sale bills. The advances received were duly recorded in the books and linked to later sale of shares. The AO had not conducted independent inquiry to substantiate the allegation that the concerned parties were shell entities. Mere suspicion, without material evidence, could not justify an addition under Section 69A. As the assessee had discharged its primary onus by producing documentary evidence, and no defects were pointed out by the Revenue, the deletion of Rs. 3,59,28,733 was affirmed.

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