2018 (2) TMI 1917 - AT - Income Tax

Addition u/s 68 - unsecured cash credit - HELD THAT - There is no discussion regarding confirmation being filed by these shareholders representing 55% of the share transaction in the assessment order. Notwithstanding the same, nothing has been brought to our notice which demonstrates that these confirmations were filed by the assessee company and accepted by AO during the course of assessment proceedings. Further, we donot agree with the contentions of the ld AR that the addition has been made by the AO merely for want of confirmation from these nine persons. AO has stated clearly in his findings that even though the assessee has furnished details of share capital and share premium, it has not furnished the confirmation and other details with regard to investment made in share capital and premium receipts from nine specified persons amounting to ₹ 81,84,399/-. AO that it is necessary for the assessee to prove prima facie the transaction which resulted in share application and share premium by submitting proof which includes proof of the identity, capacity of the creditor or their share holder and lastly, the genuineness of the transaction. As stated by the AO that merely establishing the identity of the creditor or the transaction have been routed through bank instruments is not enough. As per AO that assessee has not complied with the legal obligation to explain the source of share application money and the premium and even the confirmations have not been furnished and the amount was accordingly treated as unexplained and added to the income of the assessee u/s 68 We deem it appropriate to set aside the matter to the file of the AO to examine the same afresh taking into consideration the above discussions. In the result, ground of assessee s appeal is allowed for statistical purposes. Disallowance of power charges - AO held that the said sum relates to preceding year and the same was disallowed and added to the income of the assessee - HELD THAT - There is no dispute that the year in which the liability has crystallized, the assessee shall be eligible to claim the same. However, from the material available on record, it is not clear whether the assessee has claimed the same in the earlier years to which the said payment originally belongs and whether the same was allowed for tax purposes. If it was already claimed and allowed in the earlier years, the AO is right in disallowing the same. Where it was not claimed and not allowed in the earlier years, the assessee shall be eligible to claim the same in the year under consideration. The matter is accordingly set-aside to the file of the AO to examine the said aspect of the matter and decide the same afresh. In the result, the ground is allowed for statistical purposes. Estimating of gross profit rate - rejection of books of accounts u/s 145(3) - HELD THAT - Pursuant to rejection of books of accounts u/s 145(3) of the AO, the AO has estimated the G.P rate of 1.84% as shown in the case of M/s Seth Alloys Pvt ltd, Bhiwadi which is claimed to be carrying on the same nature of business as that of the assessee and has applied the same on the estimated turnover of ₹ 4.50 crores. The turnover so estimated by the AO is not under challenge before us. Regarding the estimation of G.P rate, the AO has applied the G.P rate as that of M/s Seth Alloys Pvt ltd, Bhiwadi. We agree with the contention of the ld AR that where any third party material is used against the assessee, the assessee should be provided an opportunity to rebut the same. We accordingly set aside the matter to the file of the AO for the limit purposes of disclosing the details of M/s Seth Alloys Pvt ltd, Bhiwadi as available on record and after allowing an opportunity to the assessee to examine the said details and provide its rebuttal, decide the same afresh. In the result, the ground of appeal is partly allowed for statistical purposes.

Summary

Issues Involved:
1. Addition under Section 68 of the IT Act, 1961 regarding share capital money.
2. Disallowance of payment made to RSEB.
3. Rejection of books of accounts and trading addition by applying a G.P. rate.

Issue-wise Detailed Analysis:

1. Addition under Section 68 of the IT Act, 1961 regarding share capital money:
The assessee received share capital and premium totaling ?1,81,84,399 during the assessment year. The AO made an addition of ?81,84,399 under Section 68 due to the failure of the assessee to provide confirmations and other details for nine specified shareholders. The AO emphasized that merely establishing the identity of the creditors or routing transactions through bank instruments is insufficient without proving the identity, capacity, and genuineness of the transactions.

During the appellate proceedings, the assessee submitted additional evidence, including confirmations from the shareholders. However, the AO, in his remand report, stated that the confirmations lacked dates and were unreliable. The CIT(A) upheld the addition, noting that the assessee failed to substantiate the identity, creditworthiness, and genuineness of the transactions. The Tribunal, after considering various legal precedents, set aside the matter to the AO for fresh examination, emphasizing the need for a thorough investigation and verification of the shareholders' details.

2. Disallowance of payment made to RSEB:
The AO disallowed ?5,52,719 paid to RSEB, considering it as a prior period expense. The assessee contended that the payment was a settlement against a previous year's demand, claimed in the year of payment. The CIT(A) upheld the disallowance due to the absence of evidence. The Tribunal set aside the matter to the AO to verify whether the expense was claimed and allowed in earlier years. If not, the assessee should be allowed to claim it in the current year.

3. Rejection of books of accounts and trading addition by applying a G.P. rate:
The AO rejected the assessee's books of accounts under Section 145(3) due to discrepancies in sales, cost prices, and power consumption. The AO estimated sales at ?4.50 crores and applied a G.P. rate of 1.84%, resulting in a trading addition of ?30,62,100. The CIT(A) upheld the rejection and addition, noting the lack of evidence from the assessee.

The Tribunal noted that the AO did not provide the assessee with the details of the comparable case (M/s Seth Alloys Pvt. Ltd.) used to estimate the G.P. rate. The Tribunal set aside the matter to the AO to disclose the details of the comparable company and allow the assessee to examine and rebut the same before making a fresh decision.

Conclusion:
The Tribunal partially allowed the appeal for statistical purposes, setting aside the matters related to the addition under Section 68, disallowance of payment to RSEB, and rejection of books of accounts for fresh examination by the AO, ensuring a thorough investigation and fair opportunity for the assessee to present its case.