2018 (5) TMI 2034 - AT - Income Tax

Addition u/s 68 - share application money received by the assessee from different entities were declared by the Sales Tax Department of Maharashtra as to be hawala dealer and the entities also did not respond to inquiries made by AO - HELD THAT - The proviso to section 68 has clearly and unambiguously been held to be prospective and not retrospective. Admittedly the same is not applicable in the assessment year which has been considered here, i.e., assessment year 2010 - 11. Hence, adverse inference taken by the assessing officer that assessee could not produce the share applicants and also could not produce their books of account, is not sustainable. We find that the ld. CIT (Appeals) has given a clear finding that in respect of the said share applications, genuineness of the transaction, identity and the capacity of the parties are examined and found to be in order. We find that the above finding of the ld. CIT (Appeals) is duly corroborated by the various details submitted in respect of the above said corporate entities which include name, addresses, permanent account number, financial statements, bank statements and income tax return copies and confirmations given. The Income Tax Inspector has also given in affirmative his report regarding the address of some of the shareholders inspected by him. The requisitions given by assessing officer in the remand proceedings have been duly complied with by all parties except for one party namely M/s. Empower Industries India Ltd. Addition deleted by the ld. Commissioner of Income Tax (Appeals) are in accordance with the above precedent's except for one share applicant namely Jagdamba Coplex Private Limited. In the case of this company according to the submissions of the Ld counsel of the assessee himself the name of the company has been struck off from the website of Ministry of Corporate Affairs. The Ministry of Corporate Affairs has struck off some of the shell companies/companies which are inactive with no activity for a long time. However, we also note that in a number of such cases where names have been struck off, fresh applications have been made by the CBDT with the Company Law Tribunal for restoration of those companies whose name has been struck of so that Department can pursue appeals related to them. In light of these facts, we deem it appropriate to remit the issue of addition in the case of Jagdamba Complex Private Limited to the file of the assessing officer so that assessing officer shall examine this case afresh. In the case of M/s. Empower Industries India Limited we find that all the findings of the ld. Commissioner of Income Tax (Appeals) are identical as in case of all other share applicants, except that in this case there has been no reply to the requisition of the assessing officer under section 133(6). All the relevant details like name, address, PAN no., financial statements, income tax returns, bank statements were duly submitted. his issue also needs to be remitted to the file of assessing officer for fresh consideration. Hence, we remit this issue also to the file of assessing officer for fresh examination.

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act.
2. Admission of additional evidence by the CIT(A).
3. Acceptance of the identity, genuineness, and creditworthiness of the entities from whom the assessee received monies.
4. Confirmation of disallowance under Section 68 for Preference Share Capital received from a specific entity.

Detailed Analysis:

Issue 1: Deletion of Addition Made Under Section 68 of the Income Tax Act
The primary issue revolves around whether the CIT(A) erred in deleting the addition of ?38,12,79,600 made under Section 68. The Assessing Officer (AO) had made this addition on the grounds that the share application money received by the assessee from various entities was declared by the Sales Tax Department of Maharashtra as being from hawala dealers, and the entities did not respond to inquiries. The CIT(A) noted that the assessee had furnished substantial documentation, including share application forms, balance sheets, bank statements, and confirmations from shareholders, to establish the identity and creditworthiness of the shareholders. The CIT(A) further observed that the Inspector's report confirmed the existence of some shareholders at the given addresses and that 18 out of 19 shareholders responded to notices under Section 133(6). The Tribunal upheld the CIT(A)'s decision, noting that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions, except for one entity, M/s. Empower Industries India Limited.

Issue 2: Admission of Additional Evidence by the CIT(A)
The Revenue contended that the CIT(A) admitted additional evidence without appreciating that the assessee had not produced any evidence before the AO. The CIT(A) justified the admission of additional evidence, stating that the appellant was not provided sufficient time to submit these evidences during the assessment proceedings and some documents were destroyed in a fire. The Tribunal supported the CIT(A)'s decision, highlighting that the additional evidence was relevant and material to the grounds raised in the appeal and was admitted in the interest of justice.

Issue 3: Acceptance of the Identity, Genuineness, and Creditworthiness of the Entities
The AO had doubted the identity and creditworthiness of the shareholders, as the notices issued to them were returned unserved, and the shareholders were not produced for verification. The CIT(A) found that the assessee had provided documentary evidence such as PAN cards, income tax returns, financial statements, and bank statements to prove the identity and creditworthiness of the shareholders. The CIT(A) also noted that the Inspector's report confirmed the existence of some shareholders. The Tribunal upheld the CIT(A)'s findings, stating that the assessee had discharged its onus under Section 68 by providing sufficient evidence to establish the identity, creditworthiness, and genuineness of the transactions.

Issue 4: Confirmation of Disallowance Under Section 68 for Preference Share Capital Received from M/s. Empower Industries India Limited
The CIT(A) confirmed the addition of ?5,00,40,000 under Section 68 for the preference share capital received from M/s. Empower Industries India Limited, as this entity did not respond to the notice under Section 133(6). The Tribunal noted that the assessee had provided all necessary details for this entity, including name, address, PAN, financial statements, and bank statements. However, due to the lack of response from M/s. Empower Industries India Limited, the Tribunal remitted this issue back to the AO for fresh consideration.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition under Section 68 for most shareholders, as the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions. However, the Tribunal remitted the issue of addition for M/s. Empower Industries India Limited and M/s. Jagdamba Complex Private Limited back to the AO for fresh examination. The Tribunal emphasized that the proviso to Section 68 is prospective and not applicable for the assessment year in question.

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