2015 (9) TMI 490 - AT - Income Tax

Addition on unexplained share capital under section 68 - CIT(A) deleted addition - Held that - CIT(A) was not justified in deleting the addition made by the AO particularly when the assessee failed to produce the concerned parties. At the same time, it also appears that the AO without considering the documents furnished by the assessee in the form of share applications, copy of bank account from where money was paid, copy of acknowledgment of Income Tax Return, copy of the balance sheet etc. and made the addition. It is also noticed that the confirmation furnished by the assessee were doubt full which is evident from the confirmation placed at page no. 28 of the assessee s paper book, claimed to have been received from M/s Chandra Buildcon Pvt. Ltd. and had been signed by Kavita, but it was mentioned that the said confirmation was given by Surbhi Jain, Director. We, therefore, by considering the totality of the facts as discussed here in above deem it appropriate to remand this issue back to the file of the AO to be adjudicated afresh in accordance with law after providing due and reasonable opportunities of being heard to the assessee. - Decided in favour of revenue for statistical purposes. Disallowance of salary - CIT(A) deleted addition - Held that - AO while making the disallowance @ 50% had not given any basis or cogent reasons. The ld. CIT(A) also accepted the contention of the assessee by simply stating that a business is in a running stage and the employees were paid actually and that the quantum of income cannot decide as to whether the entire salary paid was for the purpose of business or not. He also observed that the employees will have to be paid to keep business activities alive. However, nothing was brought on record to substantiate that the payment on account of salary was made for the business purposes in regular course of business. Accordingly, this issue is also set aside to the file of the AO. - Decided in favour of revenue for statistical purposes.

Summary

Issues:
1. Deletion of addition of Rs. 44,00,000 on account of unexplained share capital under section 68 of the IT Act, 1961.
2. Deletion of addition of Rs. 3,12,000 made on account of disallowance of 50% of salary expenses on an ad hoc basis.

Analysis:

Issue 1: Deletion of addition of Rs. 44,00,000 on account of unexplained share capital:
The department raised concerns regarding the deletion of the addition made by the assessing officer on account of unexplained share capital. The assessing officer observed that the assessee failed to provide evidence regarding the source of share application money and share premium received. The AO made the addition under section 68 of the Act, considering the amount as unexplained credit. The ld. CIT(A) noted that the assessee had submitted various documents to prove the genuineness of the transactions, including confirmations from the companies, bank statements, and balance sheets. The ld. CIT(A) found that the assessee had fulfilled the onus of proving the identity and creditworthiness of the investors as required under section 68. Citing relevant case law, the ld. CIT(A) deleted the addition of Rs. 44,00,000.

Issue 2: Deletion of addition of Rs. 3,12,000 on account of disallowance of salary expenses:
Regarding the disallowance of Rs. 3,12,000 from salary expenses, the ld. CIT(A) observed that the AO's action was based on suspicion without concrete evidence. The ld. CIT(A) noted that the business was operational, and the employees were paid, indicating legitimate business activities. The ld. CIT(A) emphasized that when a business is running, salary expenses are essential to sustain operations. Consequently, the addition of Rs. 3,12,000 was also deleted.

The department contested the decisions, arguing that the assessee failed to produce the concerned parties for verification and that the confirmations provided were unreliable. The department asserted that the onus to prove identity and creditworthiness was not discharged by the assessee. The tribunal found that while the assessee did not produce the concerned parties, the AO did not fully consider the documents submitted. Noting discrepancies in the confirmations provided, the tribunal remanded the issue back to the AO for reevaluation. Similarly, the issue of salary expense disallowance was set aside for the AO to provide a reasoned decision.

In conclusion, the appeal of the department was allowed for statistical purposes, with the tribunal directing a fresh assessment on both issues.