2005 (4) TMI 533 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 7 lakhs under section 68 of the IT Act.
2. Non-compliance with Tribunal's directions by the Assessing Officer.
3. Reliance on and denial of statements by investors.
4. Interest charged under sections 234A and 234B.

Issue-wise Detailed Analysis:

1. Addition of Rs. 7 Lakhs under Section 68 of the IT Act:

The primary issue is the confirmation of an addition of Rs. 7 lakhs by the Assessing Officer (AO) under section 68 of the Income Tax Act, which pertains to unexplained cash credits. The assessee-company received share application money from seven individuals, which the AO initially did not accept as genuine. The Tribunal had set aside the original assessment, directing the AO to scrutinize the documents provided by the assessee to prove the identity and creditworthiness of the shareholders. However, the AO, in the reassessment, accepted the share capital addition of Rs. 8 lakhs but maintained the addition of Rs. 7 lakhs as unexplained, citing that the affidavits provided by the shareholders were not sufficient.

2. Non-compliance with Tribunal's Directions by the Assessing Officer:

The Tribunal had previously directed the AO to allow the assessee reasonable opportunity to file various documents proving the identity and creditworthiness of the shareholders. The AO issued notices under section 133(6) to some shareholders and accepted share capital for Rs. 8 lakhs but did not properly scrutinize the documents for the remaining Rs. 7 lakhs. The AO relied on initial statements made by the shareholders denying their investments, without conducting fresh inquiries or considering additional evidence provided by the assessee.

3. Reliance on and Denial of Statements by Investors:

The assessee provided fresh affidavits, handwritten statements, share certificates, income tax return acknowledgments, PAN cards, bank statements, and ration cards to prove the genuineness of the share application money. The AO and CIT(A) did not give due weight to these additional pieces of evidence. The CIT(A) admitted the additional evidence but still upheld the addition, stating that the assessee failed to prove the capacity/creditworthiness of the shareholders. The Tribunal noted that the initial statements were taken behind the back of the assessee without cross-examination, and the affidavits retracting these statements were not given due consideration.

4. Interest Charged under Sections 234A and 234B:

The assessee contested the interest charged under sections 234A and 234B, which the CIT(A) held to be mandatory. This issue was not elaborated upon in the judgment, as the primary focus was on the addition under section 68.

Conclusion:

The Tribunal concluded that the CIT(A) erred in confirming the addition of Rs. 7 lakhs under section 68 without proper material evidence. The assessee had provided sufficient documentation to prove the identity and creditworthiness of the shareholders. The reliance on initial statements taken under duress and without cross-examination was legally untenable. The Tribunal directed the deletion of the addition, emphasizing that the burden of proof had shifted to the revenue, which failed to disprove the affidavits and evidence provided by the assessee. The Tribunal also noted that the transactions through banking channels and the regular assessment of the shareholders to income tax supported the genuineness of the share application money.