2017 (3) TMI 1859 - AT - Income Tax

Validity of reopening of assessment u/s 147 - eligibility of reasons to believe - addition on account of unexplained investment in the subscribed paid up share capital u/s 69 - mandation to discharge of initial onus - HELD THAT - Assessee company, being a private limited company which has received the amount towards the share subscription again from two other private limited companies has failed to discharge the initial onus placed on it. Mere fact that the money has been received through banking channel is not sufficient enough to discharge the burden. The confirmations, on the letterheads of the assessee company without specifying any date of confirmation, identification by way name and designation of the person signing those confirmations on behalf of the investee companies, have been filed during the appellate proceedings, however the letters issued by the Assessing officer to these two investee companies have been returned undelivered and even the new addresses submitted are incomplete which raises a serious question mark on the confirmations so filed as the same is not wholesome, credible and verifiable. The creditworthiness and genuineness of the transaction is therefore not proved by showing merely issue and receipt of demand drafts when circumstances requires that there should be some more evidence of positive nature to show that the subscribers have made genuine investment. AO clearly harbours doubts about the legitimacy of share subscription in the books of the assessee company and has gone about issuing letters seeking confirmation and calling for the personal attendance of the directors of the investee companies. Whilst it does appear that at the time of assessment proceedings, the assessee s premises were locked due to some Court proceedings and the assessee couldn t submit appropriate documentation, however the assessee was given sufficient opportunity during the appellate proceedings by the ld CIT(A) and by the AO during the remand proceedings, genuine doubts as to the identity, creditworthiness and genuineness of transaction continue to persist in the minds of the Assessing officer. The explanation about the nature and source of such sum found credited in its books of accounts has not been found satisfactory and the initial burden on the assessee cannot be said to be have been discharged in the instant case - Decided against assessee. Adhoc additions made by the Assessing officer - assessee has shown an increase in subscribed paid up capital, Addition of Vanaspati Ghee, accrued/earned on FDR loans, bills/vouchers of expenses have not been produced for verification and increase in unsecured loans from others - HELD THAT - CIT(A) has given a finding that the assessee company has produced the books of accounts during the course of remand proceedings but the ld. AO has not verified the contents of the books of account and no specific defects had been pointed out by the AO in his remand report on all the additions. It is also noted that adhoc additions have been made by the Assessing officer (except for an amount in respect of unsecured loans) which cannot be sustained in the eye of law. In light of the same, we hereby direct the deletion of all these additions made by the AO in respect of additional issues no. 2 to 4 - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition on account of unexplained investment in share capital under Section 69.
2. Deletion of trading addition.
3. Deletion of addition made on account of accrued loan and advances.
4. Deletion of disallowance out of expenses.
5. Deletion of unexplained cash credit under Section 68.

Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Investment in Share Capital under Section 69:
The Revenue contended that the CIT(A) erred in deleting the addition of ?1,75,00,000 on account of unexplained investment in share capital, including ?16,60,000 on account of bogus entries. The Assessing Officer (AO) reopened the assessment based on information regarding bogus entries from M/s Moon Holding & Credit Ltd. and Subh in Fin Caps Ltd. However, the AO could not verify the share allotment details due to the non-production of necessary documents by the assessee. The CIT(A) allowed the relief based on the books of accounts produced during the remand proceedings, which were not verified by the AO. The Tribunal held that the assessee failed to discharge the initial onus of proving the identity, creditworthiness, and genuineness of the transactions, thus confirming the addition of ?1,75,00,000 under Section 68 instead of Section 69.

2. Deletion of Trading Addition:
The AO made a lump-sum trading addition of ?10,00,000 due to the non-production of books of accounts, purchase/sales vouchers, and expense bills. The CIT(A) deleted the addition, noting that the books of accounts were produced during the remand proceedings but not verified by the AO. The Tribunal upheld the CIT(A)'s decision, stating that the adhoc addition cannot be sustained without specific defects pointed out by the AO.

3. Deletion of Addition Made on Account of Accrued Loan and Advances:
The AO added ?29,99,610, representing 15% of the loans and advances, due to the non-verification of other income accrued on fixed deposits and loans. The CIT(A) deleted the addition, as the books of accounts were produced during the remand proceedings, and no specific defects were pointed out by the AO. The Tribunal upheld the CIT(A)'s decision, noting the lack of verification by the AO.

4. Deletion of Disallowance Out of Expenses:
The AO disallowed ?1,35,046, representing 1/6th of the increased expenses compared to the previous year, due to the non-production of bills and vouchers. The CIT(A) deleted the addition, as the books of accounts were produced during the remand proceedings, and no specific defects were pointed out by the AO. The Tribunal upheld the CIT(A)'s decision, noting the lack of verification by the AO.

5. Deletion of Unexplained Cash Credit under Section 68:
The AO added ?4,02,646 as unexplained cash credit due to the non-verification of unsecured loans. The CIT(A) deleted the addition, noting that the books of accounts were produced during the remand proceedings, and no specific defects were pointed out by the AO. The Tribunal, however, confirmed the addition, stating that the initial onus cast on the assessee was not discharged.

Conclusion:
The Tribunal confirmed the addition of ?1,75,00,000 under Section 68 and ?4,02,646 as unexplained cash credit, while deleting the trading addition, addition on account of accrued loan and advances, and disallowance out of expenses. The appeals filed by the Revenue were partly allowed.