2014 (10) TMI 258 - AT - Income Tax

Unexplained cash credits u/s 68 Held that - Out of the 23 parties, notices received back unserved in case of 22 parties, because of the reason that the persons were not available at the said addresses - The assessee had claimed before the AO that the said persons were his business partners, but, despite given sufficient opportunities by the AO, the assessee could not produce them for examination before the AO - all the facts on the file prove beyond doubt that the evidences have been managed by the assessee to conceal the truth and to justify the genuineness of the transactions - The AO has observed from the balance sheet of two persons that the total capital of the parties was a little more than the amounts claimed to have been paid for subscription to the share capital of the assessee - She has also noticed that both the parties owed more than ₹ 1,00,000/- plus as labour charges - the ways and means of sustenance of the persons for the period under consideration was a big mystery - The balance sheet indicated that the said persons had no creditworthiness to carry out the transactions. The explanation of the assessee to the effect that the subscribers were away to their work when the summons were sent to them does not seem to be justified or probable - It is hardly possible that all the persons were away and no one was present at their addresses to receive the summons during the period - It is not a case where summons were served on some persons and could not be served upon other persons - Thereafter the evidences/ affidavits submitted by the assessee, as observed above, are also found to be managed and even the transactions, though claimed to be done through banking channel, but, the circumstances showing the opening of the account in a particular branch on a particular date, issuance of cheque books of the same series and the payment through first leaf of the cheque book of every person, reveals that all the transactions were stage managed - the assessee had failed to establish the creditworthiness of the subscribers and the genuineness of the transactions thus, the CIT(A) was not justified in deleting the additions made by the AO Decided in favour of revenue.

Summary

Issues Involved:
1. Deletion of addition of Rs. 95,10,000/- made by the Assessing Officer (AO) as unexplained cash credit under Section 68 of the Income Tax Act.
2. Admissibility of additional evidence under Rule 46A of the Income Tax Rules.
3. Burden of proof regarding the identity, genuineness, and creditworthiness of share subscribers.

Detailed Analysis:

1. Deletion of Addition of Rs. 95,10,000/- as Unexplained Cash Credit:
The AO observed an increase in the assessee's share capital and general reserves amounting to Rs. 95,10,000/-. The assessee provided a list of 23 parties who allegedly subscribed to the shares and submitted acknowledgments of income tax returns for 20 subscribers. However, the AO was not satisfied with the details, doubting the genuineness and creditworthiness of the subscribers. Notices under Section 131 were issued but returned unserved for 22 out of 23 parties. The AO thus added Rs. 95,10,000/- to the assessee's income as unexplained cash credits under Section 68 of the Income Tax Act, citing the assessee's failure to establish the identity, genuineness, and creditworthiness of the subscribers.

2. Admissibility of Additional Evidence under Rule 46A:
The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], submitting confirmations/affidavits of the subscribers as additional evidence. The CIT(A) admitted these under Rule 46A, citing insufficient opportunity given by the AO during the assessment proceedings. The AO, in her remand report, objected to the admission of these affidavits, arguing that the assessee had ample opportunity to submit evidence during the assessment. The CIT(A) noted that the AO did not pursue further inquiries or verify the affidavits during the remand proceedings and thus accepted the additional evidence.

3. Burden of Proof Regarding Identity, Genuineness, and Creditworthiness:
The CIT(A) held that the assessee had discharged its burden by providing names, addresses, PAN numbers, bank details, and payment confirmations of the subscribers. The CIT(A) observed that the AO did not make a second attempt to serve summons or verify the affidavits, and thus, the assessee's evidence remained uncontroverted. However, the Tribunal found several inconsistencies and improbabilities in the affidavits and transactions, such as the same bank branch and cheque series used by all subscribers, indicating that the transactions were stage-managed. The Tribunal concluded that the assessee failed to establish the creditworthiness of the subscribers and the genuineness of the transactions, thus restoring the AO's addition of Rs. 95,10,000/- to the assessee's income.

Conclusion:
The Tribunal set aside the CIT(A)'s order and restored the AO's addition, holding that the assessee did not satisfactorily prove the identity, genuineness, and creditworthiness of the share subscribers. The appeal of the Revenue was allowed.