2014 (11) TMI 676 - AT - Income Tax

Unexplained cash credits u/s 68 Held that - The assessee has submitted that the amount was received from the workers was initially placed with YICS and later on the money of the workers that was received by YICS was transferred to the assessee and the workers were allotted the shares and in support of which, the assessee has also placed the affidavits and statements of the workers the submission has not been controverted by the Revenue by placing any contrary material on record - one of the reason for making the addition was that out of 506 workers 4 workers in their statement made before AO had denied about investing in the company - CIT(A) has noted that during the remand proceedings, 20 other individuals out of 25 which were summoned have confirmed of applying for the shares of the assessee and A.O. had not commented adversely - assessee has filed the affidavits of the workers who have confirmed the deposit of money and the aggregate amount of such deposits is ₹ 66,92,500 - no material has been placed by the Revenue on record to controvert the averments made by such depositors of money - As far as aggregated amount of ₹ 18,97,000/- received from 115 workers in concerned, it is seen that ₹ 11,27,500/- has been stated to have been received through YICS and it is stated to be the amount, which was deposited by the workers in YICS - no material has been placed by Revenue to controvert the submission of assessee - in the case of 47 workers where the aggregate amount received is ₹ 7,79,500, the assessee has not been in a position to discharge the onus as required u/s 68 - addition can only be sustained with respect to ₹ 7,79,500/- decided partly in favour of revenue.

Summary

Issues Involved:
1. Deletion of addition made on account of unexplained cash credit under Section 68 of the Income Tax Act.

Detailed Analysis:

Issue 1: Deletion of Addition Made on Account of Unexplained Cash Credit Under Section 68

Background and Facts:
The assessee, a company engaged in manufacturing and selling yarn, filed its return of income for the assessment year 2007-08 declaring a total income of Rs. 13,84,375/-. The case was selected for scrutiny, and the assessment was framed under Section 143(3), determining the total income at Rs. 1,34,98,390/-. The primary issue arose from the addition of Rs. 85,89,500/- made by the Assessing Officer (A.O.) on account of unexplained cash credit under Section 68, which was later deleted by the Commissioner of Income Tax (Appeals) [CIT(A)].

Assessing Officer's Observations:
During the assessment proceedings, the A.O. noted that the assessee had introduced capital through share application money and share capital, receiving Rs. 50,58,500/- from 299 individuals in cash and allotting shares worth Rs. 35,31,000/- to 207 individuals. The A.O. issued summons to 10 individuals selected randomly, out of which only 4 complied. These 4 individuals denied applying for or being allotted shares. The A.O. found that the individuals were laborers with small means, incapable of such investments, and the transactions lacked identity, creditworthiness, and genuineness. Consequently, the A.O. added the aggregate amount of Rs. 85,89,500/- as unexplained cash credit under Section 68.

CIT(A)'s Findings:
The CIT(A) deleted the addition based on several factors:
- During remand proceedings, the four individuals who initially denied the investment confirmed it.
- The assessee provided names, addresses, sources of shareholders' funds, and affidavits from most shareholders.
- During remand, 20 out of 25 individuals summoned confirmed their investment.
- The involvement of a prominent labor leader was not deemed to control the company.
- Citing the Supreme Court case of Lovely Exports P. Ltd., it was held that even if shareholders are bogus, no addition can be made in the hands of the company if names and addresses are provided.
- The Delhi Tribunal in Arun Industries Limited held that the department could proceed against individual shareholders but not add the amount in the company's hands without proving the investment emanated from the company's corpus.

Revenue's Appeal:
The Revenue argued that the entire share application money and capital were received in cash, below Rs. 20,000/- each, and four individuals denied applying for shares. The Revenue contended that the CIT(A) relied on the assessee's submissions without sufficient proof and that affidavits for 150 individuals were not filed.

Assessee's Defense:
The assessee explained that the share application money was primarily contributed by workers of a previously sick company, Navsari Cotton & Silk Mills Ltd. (NCSM), through a cooperative society (YICS). The workers' contributions were transferred to the assessee company, and affidavits were provided to support the investments. The assessee argued that the innovative effort by the labor union revived the sick company, and the contributions were genuine.

Tribunal's Decision:
The Tribunal noted that the assessee provided affidavits and statements confirming the deposits, and the Revenue did not present contrary evidence. The Tribunal found that the assessee discharged its onus for Rs. 66,92,500/-. However, for Rs. 7,79,500/- from 47 workers, the assessee failed to provide affidavits or supporting material. Consequently, the Tribunal sustained the addition for Rs. 7,79,500/- and deleted the rest.

Conclusion:
The appeal of the Revenue was partly allowed, sustaining the addition of Rs. 7,79,500/- while deleting the remaining amount.

Order Pronouncement:
The order was pronounced in open Court on 17.10.2014.