2014 (2) TMI 1376 - AT - Income Tax

Condonation of delay - delay of 183 days in filing the present appeal by the assessee - HELD THAT - Assessee has explained a reasonable cause for not filing the appeal within the period of limitation as there was an inadvertent mistake at the office of the Chartered Accountant of the assessee as explained in the affidavit. It is always a question as to whether the explanation and reason for delay was bonafide or was merely a device to cover an ulterior purpose or an underhand attempt to save the limitation. When it is brought on record that the party has not acted in malafide but the reasons explained are factually correct, then the court should be liberal in construing the sufficient cause and should lean in favour of such party. Reasons explained by the assessee are not malafide or a device to cover the ulterior purpose as there is nothing on record to infer that by filing a belated appeal the assessee could have achieved an ulterior purpose. Accordingly, we are satisfied with the reasons explained by the assessee that the assessee was having sufficient cause for not filing the appeal within the period of limitation. Hence, we condone the delay of 183 days in filing the present appeal. Unexplained cash credit u/s 68 - Revenue doubted the source of the share application money - whether transactions of allotment of share is a sham transaction? - HELD THAT - Disallowance of the claim of the assessee and addition made by the AO under Section 68 is purely based on assumption, guess work without substantiated by any evidence or material. This is not a case of bogus shareholders as all these parties are the company, which are in existence and subjected to Income Tax as the assessee has produced the relevant evidence. Therefore, when the assessee has produced all the relevant evidences, and if the department has doubted the source of the share application money, then it is free to take necessary action in respect of these parties In the case of CIT Vs. Lovely Exports Pvt. Ltd. 2008 (1) TMI 575 - SC ORDER has held that if the share application money is received by the assessee company from alleged bogus shareholders whose names are given to the AO then the department is free to proceed to reopen their individual assessment in accordance with law but it cannot be regarded as undisclosed income of the assessee company. There is nothing on record to show that these transactions of allotment of share is a sham transaction, then the department cannot treat the said share capital money as undisclosed income of the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Addition of Rs. 95,00,000/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal by the assessee was delayed by 183 days. The assessee filed an application for condonation of delay along with affidavits from the concerned individual at the Chartered Accountant's office and the Director of the assessee company. The affidavits explained that the delay was due to an inadvertent oversight by the Chartered Accountant's office, which failed to enter the appeal in the register. The assessee argued that the delay was unintentional and not malafide. The court found the explanation reasonable and concluded that the delay was not an attempt to cover an ulterior purpose. The court emphasized a justice-oriented approach, preferring substantial justice over technicalities. Consequently, the delay was condoned.

2. Addition of Rs. 95,00,000/- as Unexplained Cash Credit:
The assessee, a private limited company, received share capital and premium from various shareholders, primarily from Kolkata. The Assessing Officer (AO) questioned the genuineness of these transactions and referred the matter to the ADIT (Investigation) in Kolkata. The ADIT reported that some shareholders did not respond to summons and their existence was doubtful, while others appeared to be paper companies. Based on this report, the AO added Rs. 95,00,000/- as unexplained cash credit under Section 68 of the Income Tax Act.

Assessee's Arguments:
The assessee contended that the shareholders were genuine and provided substantial evidence to support their claim, including PAN details, income tax returns, bank statements, and other documents. The assessee relied on several judicial precedents, including the Supreme Court's decision in CIT Vs. Lovely Exports (P) Ltd., which held that if the share application money is received from alleged bogus shareholders, the department should proceed against the shareholders individually but cannot treat it as the company's undisclosed income.

Revenue's Arguments:
The Revenue argued that the companies were not in existence in a real sense and were merely paper entities used by the assessee to bring unaccounted money into the books. The Revenue emphasized the findings of the ADIT's investigation, which doubted the existence and genuineness of the transactions.

Tribunal's Findings:
The Tribunal analyzed the evidence provided by the assessee and found it sufficient to establish the identity, creditworthiness, and genuineness of the transactions. The Tribunal noted that the AO did not disprove the evidence produced by the assessee and relied solely on the ADIT's report, which was based on assumptions and not conclusive findings. The Tribunal emphasized that the onus shifted to the AO once the assessee provided substantial evidence. The Tribunal also highlighted that the similar transactions with other shareholders were accepted by the department, raising questions about the selective scrutiny of the Kolkata-based shareholders.

Conclusion:
The Tribunal concluded that the addition made by the AO under Section 68 was not justified, as the assessee had discharged its burden of proof. The Tribunal deleted the addition of Rs. 95,00,000/- and allowed the appeal in favor of the assessee.

Order:
The appeal of the assessee was allowed, and the addition of Rs. 95,00,000/- was deleted. The order was pronounced in the open court on 07/02/2014.