2015 (2) TMI 1037 - HC - Income Tax

Addition u/s 68 - ITAT confirming the order of the CIT (Appeals) who had reversed the AO's decision to disallow share application money of ₹ 1.65 crores under Section 68 - Held that - AO s suspicions formed the basis of including the amounts under Section 68 of the Act; whilst suspicion can be the basis for further enquiry, it can never be the ground for a conclusion. In the present instance, the AO apparently had the books and all the relevant information pertaining to the share applicants. n the present case, the course of proceedings indicates that the CIT(Appeals) had called for the Remand Report. That Remand Report clearly pointed to the three share applicants not only being genuine business concerns but also having substantial business activities and further having reasonably sized turnovers. In these circumstances, to establish implausibility on the part of the share applicants to have possessed the means when they applied, the AO ought to have probed further. He did not do so as is evident from the Remand Report where the AO did not offer any comments upon the materials taken into account by the CIT (Appeals). Consequently, the ITAT s order cannot be faulted. - Decided in fvaour of assessee. Unaccounted cash deposits - ITAT deleted addition - Held that - AO did not comment adversely in respect of the assessee s explanation pertaining to the cash deposits in the bank accounts even in the remand report, the inference drawn by the CIT (A) that when the balance matches with the balance sheet and cash book, no addition u/s 68 of the Act is sustainable and later the ITAT cannot be held unreasonable - Decided in fvaour of assessee.

Summary

Issues:
1. Disallowance of share application money under Section 68 of the Income Tax Act, 1961.
2. Disallowance of another amount withdrawn from the accounts.

Issue 1: Disallowance of share application money under Section 68 of the Income Tax Act, 1961:
The Revenue appealed against the ITAT's decision confirming the CIT (Appeals) order that reversed the AO's decision to disallow Rs. 1.65 crores under Section 68 of the Income Tax Act. The AO disallowed the amount as share application money received by the assessee from three concerns, alleging inadequate resources of the share applicants. The CIT (Appeals) considered submissions and a remand report, which revealed substantial business activities of the share applicants. The CIT (Appeals) observed the importance of creditworthiness in credit transactions and found the AO's disallowance unjustified. The ITAT upheld the CIT (Appeals) decision, emphasizing the Revenue's failure to prove the share applicants' lack of creditworthiness or genuineness. The judgment cited the principle from CIT v. Lovely Exports (P) Ltd., stating the burden of proof shifts to the Revenue once the initial onus is discharged by the assessee.

Issue 2: Disallowance of another amount withdrawn from the accounts:
The ITAT rejected the Revenue's contentions regarding another amount withdrawn from the accounts, as the AO did not comment adversely on the assessee's explanation in the remand report. The CIT (A) and ITAT found the explanation satisfactory, leading to the deletion of the disallowed amount. The Court held that since the AO did not challenge the explanation in the remand report, the decisions of the CIT (A) and ITAT were reasonable, dismissing the Revenue's appeal for lack of merit.

In conclusion, the appeal was dismissed as the Revenue failed to substantiate the disallowances made by the AO, and the decisions of the CIT (A) and ITAT were found to be justified based on the evidence and legal principles applied during the proceedings.