2017 (4) TMI 719 - AT - Income Tax

Addition u/s 68 - share capital issued by the assessee to the conduits of entry operators at a huge premium - CIT-A deleted the addition - Held that - Only reason why Ld. CIT appeal has deleted the addition is that when basic details have been furnished by the assessee before the Ld. assessing officer, he did not make any further enquiry and therefore the addition made by the Ld. assessing officer is held to be invalid. We do not agree with it, the Ld AO has made attempt to examine the shareholders by issuing summons, as well as by deputing inspector to find make local inquiry and at last also summoned the directors of the company but none of them remained present. Even assessee who boosted of producing the directors in earlier assessment years, also did not produce them. Furthermore, all the persons who did not care to appear before the assessing officer throughout the assessment proceedings, spanning over a period of one and half year, suddenly appears before the Ld. CIT appeal on 15/06/2012 and she examines all of them with respect to the transactions and on the same date, she passes an order deleting the whole addition of Rs. one crore. We do not agree with such an approach of the ld CIT (A) and we are also surprised in the casual manner ld CIT (A) has dealt with the whole issue when the nature of transactions, shareholders creditworthiness and genuineness of the share issued are of dubious nature. Therefore we set aside the whole matter back to the file of the ld CIT (A) with a direction to reexamine the whole issues of the share capital issued by the assessee to the conduits of entry operators at a huge premium after examining the shareholders , their creditworthiness , genuineness of the transaction with respect to their relationship with K K Bansal. - Decided in favour of revenue by way of remand.

Summary

Issues Involved:
1. Deletion of addition of ?1,00,00,000/- under Section 68 of the Income Tax Act on account of unproved credits.
2. Deletion of addition of ?2,40,780/- as income from other sources.
3. Whether the assessee submitted all books of account before the Assessing Officer.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?1,00,00,000/- under Section 68 of the Income Tax Act:
The revenue challenged the deletion of ?1,00,00,000/- by the CIT(A), arguing that the CIT(A) erred by not allowing the AO an opportunity to cross-examine the alleged investors. The assessee, a private limited company, had increased its share capital and share premium significantly during the Assessment Year 2007-08. The AO had issued several notices and summons to verify the identity, genuineness, and creditworthiness of the investors, but received no compliance. The AO also conducted an inquiry through an inspector, who reported that the investors did not carry on any business and the company was controlled by a known entry operator, K.K. Bansal. Consequently, the AO added ?1,00,00,000/- to the assessee's income under Section 68, as the assessee failed to prove the source of the cash received.

On appeal, the CIT(A) deleted the addition, stating that the assessee had submitted all necessary documents, including confirmations from investors, their PAN cards, and income tax returns. The CIT(A) also noted that the AO did not make further inquiries to establish that the share application money was the assessee's undisclosed income. The CIT(A) exercised powers under Section 250(4) and examined the investors, who confirmed their investments.

The Tribunal found that the CIT(A) had not adequately verified the details submitted by the assessee and had not considered the AO's findings that the investors were controlled by an entry operator. The Tribunal noted that the CIT(A) should have examined the creditworthiness and genuineness of the transactions more thoroughly. Consequently, the Tribunal set aside the CIT(A)'s order and directed a re-examination of the issue, allowing the AO an opportunity to examine the subscribers and directors.

2. Deletion of Addition of ?2,40,780/- as Income from Other Sources:
The Tribunal did not provide a detailed analysis for this issue, as the primary focus was on the major addition under Section 68. However, it can be inferred that the Tribunal's decision to set aside the CIT(A)'s order for re-examination would also encompass this aspect, ensuring a comprehensive review of all additions made by the AO.

3. Whether the Assessee Submitted All Books of Account Before the Assessing Officer:
The revenue contended that the CIT(A) erred in holding that the assessee had submitted all books of account before the AO. The Tribunal noted that the assessee had been non-compliant during the assessment proceedings, failing to produce relevant documents and investors despite multiple opportunities. The Tribunal observed that the CIT(A) had not adequately addressed the AO's concerns and had not ensured a thorough examination of the records. Therefore, the Tribunal directed a re-examination of the entire issue, implicitly addressing the need for proper submission and verification of all books of account.

Conclusion:
The Tribunal set aside the CIT(A)'s order and directed a re-examination of the issues concerning the addition of ?1,00,00,000/- under Section 68 and the deletion of ?2,40,780/-. The Tribunal emphasized the need for a thorough verification of the investors' creditworthiness, genuineness of transactions, and proper submission of all books of account. The appeal was partly allowed for statistical purposes, and the matter was remanded to the CIT(A) for a detailed re-evaluation.