2020 (1) TMI 1360 - AT - Income Tax

Unexplained cash credit u/s 68 - assessee challenges that proper opportunity was not provided by the A.O -assessee also filed additional evidence under Rule 46(1)(A) comprising bank statement, annual report of KMC Construction Ltd and confirmation from it - HELD THAT - In the additional evidence noted by the ld. CIT(A), which was said to have been remanded to the A.O. for comments, there is only mention of bank statement, annual report of KMC and confirmation from it. However, in his order, the ld. CIT(A) has also referred and relied that the copy of share subscription agreement between KMC Constructions Ltd. B. Seenaiah Coo., Kanwaldeep Investment Co. P. Ltd. and appellant company and promoters dated 14.2.2008 has been filed. From this, he opined that this sets out the plans of the Appellant company, the milestones for allotment of shares, the plan to go for an IPO at a later stage, and conversion schedule in various scenarios. This agreement was not remanded to the A.O. as evident from the order of ld. CIT(A). Hence, clearly the ld. CIT(A) has erred in admitting that said document in violation of Rule 46A. There is no reference to the detailed financials of the company in the order of the learned CIT appeals. It is not at all clear that the CIT appeal has examined the sources of fund of the assessee company properly. There is nothing on record to rule out that the amount of share premium granted to the company having a very poor financial record was not out of circuitous route of rotation of share capital with premium. It is also not the case that the CIT appeals had himself examined the issue that assessing officer is doubting the very identity of the company when there was no service of notice u/s.133(6) at the given address. There is no detail as to what was the authorized capital. Whether the assessee company was authorized to raise the said amount of share capital. In this view of the matter since the assessing officer has not been provided adequate opportunity to go through the additional evidences, the examination of the ld. CIT(A) is wholly inadequate. Accordingly, in the interest of justice, we remit the issue to the file of assessing officer. Assessing officer is directed to examine the veracity of the additional documents being submitted by the assessee before the learned CIT appeals. AO shall also keep our observations hereinabove in mind. The assessing officer shall also examine as to how the share premium account of the assessee in this regard has been dealt with .Appeal by the revenue stands allowed for statistical purposes.

Summary

Issues Involved:
1. Admission of fresh evidence in violation of Rule 46A of the Income Tax Act, 1961.
2. Adequacy of opportunity granted by the CIT(A) to the Assessing Officer.
3. Deletion of addition made under Section 68 of the Income Tax Act, 1961.
4. Relevance of other subscribers being found acceptable to the genuineness of the subscription by KMC Construction Ltd.
5. Validity of reopening the assessment.

Issue-wise Detailed Analysis:

1. Admission of Fresh Evidence in Violation of Rule 46A:
The Revenue contended that the CIT(A) erred in admitting fresh evidence in violation of Rule 46A of the Income Tax Act, 1961. The CIT(A) had accepted additional evidence, including the bank statement, annual report, and confirmation from KMC Construction Ltd. The CIT(A) forwarded these to the Assessing Officer for verification but did not receive a report on the merits. The Tribunal observed that the CIT(A) had erred in admitting the share subscription agreement without remanding it to the Assessing Officer, thus violating Rule 46A.

2. Adequacy of Opportunity Granted by the CIT(A) to the Assessing Officer:
The Tribunal noted that the CIT(A) did not provide adequate time for the Assessing Officer to verify the additional evidence. The Assessing Officer was not given sufficient opportunity to comment on the merits of the additional evidence. The Tribunal emphasized that the principles of natural justice apply equally to both parties and that the Assessing Officer should have been given a proper opportunity to examine the additional documents.

3. Deletion of Addition Made Under Section 68:
The CIT(A) deleted the addition of ?3,75,00,000 made under Section 68, holding that the identity, creditworthiness, and genuineness of the transaction were established based on the additional evidence provided by the assessee. The Tribunal found that the CIT(A)'s examination was inadequate and that the Assessing Officer had not been given a chance to verify the additional documents. The Tribunal remitted the issue to the Assessing Officer for a thorough examination of the additional evidence.

4. Relevance of Other Subscribers Being Found Acceptable:
The CIT(A) noted that other subscribers, such as B. Seenaiah & Co. and Kanwaldeep Investment Co. P. Ltd., had been accepted by the Assessing Officer, which weakened the case against KMC Construction Ltd. The Tribunal, however, did not find this argument sufficient to establish the genuineness of the transaction with KMC Construction Ltd. without proper verification by the Assessing Officer.

5. Validity of Reopening the Assessment:
The CIT(A) upheld the validity of reopening the assessment, stating that the Assessing Officer had credible reasons to believe that income had escaped assessment due to the unusual premium on shares issued by a loss-making company. The Tribunal did not find any fault with this part of the CIT(A)'s order.

Conclusion:
The Tribunal allowed the appeal by the Revenue for statistical purposes, remitting the issue back to the Assessing Officer for a detailed examination of the additional evidence provided by the assessee. The Assessing Officer was directed to verify the documents and consider the Tribunal's observations while making a fresh assessment. The Tribunal emphasized the need for proper opportunity and adherence to the principles of natural justice in the reassessment proceedings.