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2010 (6) TMI 787 - AT - Income TaxAddition u/s 68 - Unexplained share application money - search and seizure operation - creditworthiness and genuineness of the shareholders - Third Member Order - difference of Opinion between learned Members - Whether, the learned Vice President is correct in confirming the order of the CIT(A) deleting the addition of ₹ 5,00,000 made by the Assessing Officer on substantive basis on account of unexplained share application money from one company, or the issue is to be restored to Assessing Officer for fresh consideration as opined by the ld Accountant Member? learned Vice President - HELD THAT - We are of the view that there is no material to disturb the order of the first appellate authority. It is true that some of the evidences were not before the Assessing Officer. That alone is not sufficient to remand the matter back to the file of the Assessing Officer. Assessee made request to admit additional evidence and it was accepted and remand report was called for. The registration of the Companies is evidenced by the Registrar s certificate issued by the Registrar of Companies. The share application is also reflected in their returns. The allotment of share is also reflected from the share allotment done by the assessee. From the Schedule 3, i.e., investment in shares by this companies, which appears that they had their holding, which they had applied for shares from among other companies, which is reflected and was before the competent authorities, which was produced along with the return and this fact is not denied. All these indicate the existence of companies. Registration of the companies cannot be denied in the light of the above facts, merely because in case of certain companies when the enquiry conducted, the details were not forthcoming ipso facto coming to the conclusion that the application and allotment of shares is false. Thus, we are of the view that there is no material before us to disturb the order of the learned first appellate authority. The appeal by the revenue on this ground fails. Deletion of the addition on substantive basis on account of explanation of share application money from one company - Assessee explained that this was also a part of share application money. In the absence of any clinching evidence to the contrary there is no reason to interfere with the order of learned first appellate authority. Hence, appeal by the revenue on both grounds fails and it is dismissed. In the result, the appeal of the revenue and cross-objection of the assessee is dismissed. ld. Accountant Member, wrote the dissent, opined that the matter needs to be restored to the Assessing Officer for fresh consideration. Third Member Order - I have carefully examined the above documents, which are available in assessee s Paper Book filed before the Tribunal. In my opinion, the assessee has discharged the onus which lay upon him u/s 68 of the Act. It is observed that the ld. CIT(A) has also examined the documentary evidences referred to above furnished by the assessee before him and after examining the same, the ld. CIT(A) came to the conclusion that the shareholding has to be accepted as genuine. The ld. CIT(A) and the ld. V.P. have examined the question of identity, creditworthiness and genuineness of each of the shareholders. Even the documentary evidence referred to above shows that the assessee has offered an explanation about the nature and source of the sum found credited in its books and the explanation is satisfactory. The assessee has not only established the identity of each of the shareholders but has also proved that each of them are income-tax assessees and had disclosed the share application money in their accounts which were duly reflected in their income-tax returns as well as in their balance sheets. Thus, no addition is called for. Thus, I agree with the order of the ld. V.P. in confirming the deletion of addition of ₹ 20 lakhs made by the Assessing Officer on protective basis and also in confirming the deletion of addition of ₹ 5 lakhs made by the Assessing Officer on substantive basis on account of unexplained share application money. The matter will now go to the Division Bench to pass order as per majority view.
Issues Involved:
1. Deletion of addition of Rs. 20 lakhs made on a protective basis on account of unexplained share application money from three companies. 2. Deletion of addition of Rs. 5 lakhs made on a substantive basis on account of unexplained share application money from one company. 3. Compliance with Rule 46A of the Income-tax Rules by the CIT(A) in admitting additional evidence. Issue-wise Detailed Analysis: 1. Deletion of Addition of Rs. 20 Lakhs on Protective Basis: The revenue objected to the CIT(A)'s deletion of Rs. 20 lakhs added by the Assessing Officer (AO) on a protective basis due to unexplained share application money from three companies. The AO had treated the share application money as income under Section 68 of the Income-tax Act, citing insufficient evidence to prove the capacity, genuineness, and creditworthiness of the creditors. The CIT(A) deleted the addition, stating that the AO had not directed the assessee to produce evidence to prove the genuineness of the shareholding companies and had not expressed any doubts before treating the share capital as unexplained. The CIT(A) accepted the certificate of incorporation and audited statements of the subscribing companies, which were filed with the Registrar of Companies and revenue authorities, indicating their capacities and shareholdings. The Tribunal upheld the CIT(A)'s decision, noting that the registration of the companies and their returns reflected the share application money, thus establishing their existence and genuineness. 2. Deletion of Addition of Rs. 5 Lakhs on Substantive Basis: The revenue also contested the deletion of Rs. 5 lakhs added on a substantive basis due to unexplained share application money from one company. The AO had added this amount, citing insufficient evidence to prove the transaction's genuineness. The CIT(A) deleted the addition, accepting the additional evidence provided by the assessee, including the certificate of incorporation, audited statements, and returns of the subscribing companies. The Tribunal agreed with the CIT(A), noting that the share application money was reflected in the companies' returns and balance sheets, and the department had accepted these returns, thus establishing the genuineness of the shareholding. 3. Compliance with Rule 46A of the Income-tax Rules: The revenue argued that the CIT(A) had violated Rule 46A by admitting additional evidence without giving the AO a proper opportunity to examine it. The CIT(A) had admitted the additional evidence, stating that the AO had not asked the assessee to furnish any information during the assessment proceedings and that the assessee was prevented by reasonable cause from furnishing the additional evidence earlier. The CIT(A) forwarded the additional evidence to the AO for comments, but the AO objected to its admission, stating that sufficient opportunities had been given to the assessee. The Tribunal upheld the CIT(A)'s decision, noting that the CIT(A) had recorded reasons for admitting the additional evidence and had given the AO an opportunity to object, thus complying with Rule 46A. The Tribunal also noted that the report of the ADIT (Investigation) Kolkata could not be used against the assessee without confronting it with the report. Separate Judgments: The Accountant Member (AM) differed from the Vice President (VP) and opined that the issue should be restored to the AO for fresh consideration, citing non-compliance with Rule 46A and the need for the AO to examine the additional evidence. The VP, however, confirmed the CIT(A)'s order, stating that the CIT(A) had not violated Rule 46A and that the additional evidence provided by the assessee was sufficient to establish the genuineness of the transactions. The Third Member agreed with the VP, confirming the deletion of the additions and noting that the CIT(A) had correctly admitted the additional evidence and that the assessee had discharged the onus under Section 68. Conclusion: The Tribunal upheld the CIT(A)'s order deleting the additions of Rs. 20 lakhs and Rs. 5 lakhs on protective and substantive bases, respectively, and confirmed that the CIT(A) had complied with Rule 46A in admitting the additional evidence. The appeal by the revenue was dismissed, and the cross-objection by the assessee was also dismissed as infructuous.
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