2012 (9) TMI 156 - AT - Income Tax

Addition u/s 68 - share application money - addition made on ground that there was no compliance of the notices issued - debit entries are mostly same as credit entries - debit entries and credit entries in the bank statement are mostly in round figures - multitude of companies from same addresses - outright refusal of the assesse to furnish details to the satisfaction of AO as requirement of section 68 - no compliance to produce the Principle Officers of such companies who had allegedly furnished funds the ascertain the genuineness and creditworthiness of such parties Held that - CIT(A) while deleting the addition, took into consideration the orders passed by the ITO/CIT(A)/ITAT in respect of share applicant companies and further taking into consideration that in A.Y. 2007-08 the AO had accepted the allotment as genuine, deleted the addition. Admittedly, these details were not before the AO and CIT(A) also did not even call for a remand report from the AO in respect of these documents. Thus, there was a clear violation of mandatory requirements of Rule 46A. Further we find that the confirmations filed by various share applicants are all undated and these confirmations have been given mostly by one person on behalf of various entities except in one or two cases. Under such circumstances, unless the directors were produced before the AO, he could not carry out further investigations. Since CIT(A) has taken into consideration fresh evidence, which was not confronted to the AO and by not producing the directors assessee installed all further enquiry into the matter, it would be in the interest of justice that the mater be restored back to AO for denovo considerations.

Issues Involved:
1. Deletion of addition of Rs. 3,35,35,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961.
2. Acceptance of fresh evidence by the Commissioner of Income Tax (Appeals) [CIT(A)] in violation of Rule 46A of the Income Tax Rules.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of Rs. 3,35,35,000/- Under Section 68:
The primary issue revolves around the deletion of the addition of Rs. 3,35,35,000/- made by the AO under Section 68, which pertains to unexplained cash credits. The assessee company had received share application money totaling Rs. 3,35,35,000/- from various entities, all of which shared the same address as the directors of the assessee company. The AO observed that the debit and credit entries in the bank statements were mostly in round figures and concluded that these entities were controlled by the same set of individuals.

The AO required the assessee to submit details of shareholding and produce the principal officers of the companies that provided the share application money. Notices sent to the addresses provided by the assessee were returned unserved, leading the AO to rely on the decision of the Hon'ble Delhi High Court in CIT vs. Divine Leasing and Finance Ltd., and make an addition under Section 68.

Before the CIT(A), the assessee argued that the AO's findings were based on suspicion without concrete evidence. The assessee provided documents like PAN numbers, scrutiny assessments, bank statements, and other details of the entities, which were not contested by the AO. The CIT(A) deleted the addition, citing that the entities were regular corporate entities registered with the Registrar of Companies and that the AO had not brought any material to dispute the identity and creditworthiness of the entities. The CIT(A) also noted that the AO had accepted similar share application money in the subsequent assessment year (A.Y. 2007-08).

2. Acceptance of Fresh Evidence in Violation of Rule 46A:
The Department contended that the CIT(A) accepted fresh evidence without following the procedure mandated by Rule 46A. The CIT(A) considered various orders passed by the ITO/CIT(A)/ITAT in respect of the share applicant companies, which were not available to the AO during the assessment proceedings. The CIT(A) did not call for a remand report from the AO, which is a clear violation of Rule 46A.

The Department argued that the CIT(A) did not record any reason for admitting the fresh evidence and relied on several judicial decisions to support the contention that the CIT(A) violated Rule 46A. The Department also pointed out that the CIT(A) did not examine the fresh evidence by calling for the records.

Tribunal's Decision:
The Tribunal considered the submissions of both parties and noted that the AO made the addition due to non-compliance with notices, returned notices, and the nature of debit and credit entries. The CIT(A) deleted the addition based on fresh evidence that was not before the AO and without following the mandatory requirements of Rule 46A.

The Tribunal found that the assessee did not effectively comply with the AO's enquiries and did not produce the directors for verification, which stalled further investigations. The Tribunal also noted that the confirmations filed by the share applicants were undated and mostly given by one person on behalf of various entities, necessitating the production of directors for verification.

Considering the entirety of the facts and circumstances, the Tribunal proposed restoring the matter to the AO for a denovo assessment. The Tribunal rejected the assessee's request to limit the remand to the production of directors and emphasized that the matter should be reconsidered in its entirety, including the fresh evidence admitted by the CIT(A) without following Rule 46A.

Conclusion:
The Tribunal allowed the Department's appeal for statistical purposes and restored the matter to the AO for a denovo assessment, ensuring compliance with Rule 46A and proper verification of the share application money received by the assessee. The order pronounced in the open court on 20.07.2012 highlighted the necessity of adhering to procedural requirements and the importance of thorough verification in cases involving unexplained cash credits under Section 68.

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