2010 (11) TMI 196 - AT - Income Tax

Addition of income On account of unexplained cash credit of Rs. 6.20 crore - During the period under consideration the assessee has received a small miscellaneous income, but the assessee company raised its issued subscribed and paid up capital from Rs. 10,00,000 to Rs. 3,10,00,000 and increased the reserve and surplus from Rs. 10,00,000 to Rs. 3,10,00,000 as per balance sheet as on 31-3-2004 - The assessee was asked to prove the genuineness of the transaction during the assessment proceedings repetitively - In the absence of non-compliance of conditions of Rule 46A, there was no reason to take into consideration such evidences at the appellate stage - The onus was upon the assessee to prove its case and such onus is not discharged - In the absence of any documentary evidence in support of the transaction made for increasing the share capital, reserve and surplus total amounting to Rs. 6,20,00,000 authorities below have rightly considered the same as unexplained cash credit made by the assessee during assessment year under appeal Decided against the assessee.

Issues Involved:
1. Legality of the addition of Rs. 6.20 crore as unexplained cash credit.
2. Consideration of evidence and explanation provided by the assessee regarding the impugned addition.
3. Genuineness of the balance sheet filed with the original return of income.
4. Admission of additional evidence at the appellate stage.
5. Compliance with Rule 46A of the IT Rules.

Detailed Analysis:

1. Legality of the Addition of Rs. 6.20 Crore as Unexplained Cash Credit:
The assessee's return of income for AY 2004-05 declared a loss of Rs. 1,850 and was processed under section 143(1) of the IT Act. The case was selected for scrutiny, and notices under sections 143(2) and 142(1) were issued. During the assessment, the assessee increased its issued, subscribed, and paid-up capital from Rs. 10,00,000 to Rs. 3,10,00,000 and reserves and surplus from Rs. 10,00,000 to Rs. 3,10,00,000. The AO requested details regarding the increase in share capital and reserves amounting to Rs. 6,20,00,000. The assessee submitted a list of 82 shareholders but failed to provide complete details and documentary evidence. The AO issued letters under section 133(6) to the shareholders, but most letters were returned un-served, and no evidence was received from the shareholders. Consequently, the AO treated the amount of Rs. 6,20,00,000 as unexplained cash credit under section 68 of the IT Act and made the addition.

2. Consideration of Evidence and Explanation Provided by the Assessee:
The assessee argued before the CIT (A) that the balance sheet and profit & loss account filed with the return of income were bogus, claiming that the C.A., Shri P.P. Patel, willfully filed incorrect documents. The CIT (A) rejected this explanation, noting that the directors should have been aware of the filings and should have taken action if the documents were indeed forged. The CIT (A) found that the assessee failed to substantiate the entries in the balance sheet and confirmed the addition as unexplained cash credits.

3. Genuineness of the Balance Sheet Filed with the Original Return of Income:
The assessee's claim that the balance sheet was bogus was not supported by any action against the C.A. who prepared it. The directors, who signed the return and the balance sheet, did not dispute the filings at the assessment stage. The Tribunal found that the assessee's conduct at the assessment stage, including providing details of 82 shareholders, indicated acceptance of the filings. The Tribunal concluded that the assessee's later denial of the filings was an afterthought and not credible.

4. Admission of Additional Evidence at the Appellate Stage:
The assessee sought to introduce new evidence at the appellate stage, including a new unaudited balance sheet and an affidavit. The Tribunal noted that the CIT (A) did not record reasons for admitting the additional evidence as required under Rule 46A of the IT Rules. The Tribunal found that the assessee did not satisfy the conditions for admitting additional evidence and rejected the request.

5. Compliance with Rule 46A of the IT Rules:
Rule 46A stipulates that additional evidence can be admitted only under specific circumstances, such as refusal by the AO to admit evidence or the appellant being prevented by sufficient cause from producing evidence. The Tribunal found that the assessee did not meet these conditions and that the CIT (A) did not record reasons for admitting the additional evidence. Consequently, the Tribunal upheld the CIT (A)'s decision to not consider the additional evidence.

Conclusion:
The Tribunal dismissed the appeal of the assessee, upholding the addition of Rs. 6.20 crore as unexplained cash credit. The Tribunal found that the assessee failed to prove the genuineness of the share capital and reserves and did not comply with the requirements for admitting additional evidence. The Tribunal emphasized that the assessee's conduct and failure to take action against the alleged forgery indicated acceptance of the original filings.

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