2016 (11) TMI 387 - AT - Income Tax

Unexplained cash credit u/s 68 - assessee unable to explain the sources of the introduction of fresh share capital/share application - Held that - The assessee has admitted that these share capital/share application money raised by the assessee to the tune of ₹ 3,19,35,000/- were fictitious and bogus entries and in-fact no such share capital/share application money was ever raised by the assessee and the fictitious entries in the books of accounts are now removed/eliminated to reflect true and fair state of affairs of the assessee company which has now been audited by auditors of the assessee company and the same has been filed with Ministry of Corporate Affairs, Government of India O/o Registrar of Companies and receipted challans are enclosed in the paper book-II filed with the Tribunal containing additional evidences . It is settled position of law that only real income can be brought to tax and mandate is to bring income to tax as per authority of law. These additional evidences in our considered view goes to the root of the matter and needs to be admitted and adjudicated on merits in order to advance substantial justice and we admit these additional evidences filed by the assessee vide page 43-148/paper book-II . However, the contentions of the assessee and the additional evidences so filed by the assessee need verification by the authorities below and hence we are of the considered view that in order to identify and assess the real income of the assessee and to advance substantial justice, the matter/issue under this appeal need to be set aside and restored to the file of the ld. CIT(A) for de-novo determination of the issue on merits - Decided in favour of assessee for statistical purpose.

Issues Involved:
1. Addition of ?3,19,35,000/- under Section 68 of the Income Tax Act, 1961.
2. Applicability of Section 68 to the facts of the case.
3. Admission of additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963.
4. Verification and genuineness of share capital and share application money.

Issue-wise Detailed Analysis:

1. Addition of ?3,19,35,000/- under Section 68 of the Income Tax Act, 1961:
The assessee company appealed against the addition of ?3,19,35,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO observed an increase in issued share capital and share application money totaling ?3,19,35,000/-. The assessee claimed this amount represented machinery, tools, and equipment transferred from a proprietary concern, M/s Alvi Tech Services, run by one of its directors, Shri Krishnanand Trivedi. However, the AO found discrepancies in the capital balances and the returns filed by Shri Krishnanand Trivedi, leading to the conclusion that the claimed capital was unexplained and thus taxable under Section 68.

2. Applicability of Section 68 to the facts of the case:
The assessee argued that Section 68, which presupposes the actual receipt of amounts, was not applicable since no amount was actually received. The AO and CIT(A) rejected this argument, noting that the assessee failed to substantiate the sources of the alleged capital and share application money. The AO relied on Supreme Court judgments in Roshan D Hatti v. CIT and Kale Khan Mohammad Hanif v. CIT, which place the onus of proving the source of a sum of money on the assessee.

3. Admission of additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963:
During the appeal before the Tribunal, the assessee sought to admit additional evidence, including an affidavit from Shri Krishnanand Trivedi and revised audited financial statements. The Tribunal admitted these additional evidences, noting that they go to the root of the matter and are necessary for substantial justice. The assessee claimed that the entries of ?3,19,35,000/- were fictitious, made to avail of bank loans, and were subsequently removed in revised financial statements.

4. Verification and genuineness of share capital and share application money:
The Tribunal observed that the assessee admitted to manipulating accounts to show fictitious share capital and share application money to the tune of ?3.15 crores. The Tribunal noted that the additional evidence, including revised audited accounts and affidavits, needs verification by the authorities below. Consequently, the Tribunal set aside and restored the matter to the CIT(A) for de-novo determination, emphasizing the need to assess the real income of the assessee and advance substantial justice.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, remanding the case back to the CIT(A) for a fresh evaluation of the additional evidence and explanations provided by the assessee. The Tribunal directed that proper and adequate opportunity of being heard should be granted to the assessee in accordance with the principles of natural justice.

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