2018 (1) TMI 1119 - AT - Income Tax

Assessment u/s 153A - Unexplained cash credits u/s.68 - identity and creditworthiness of the creditors not established - notice u/s.133(6) issued - Held that - We have not been able to appreciate that how from the non-maintenance of statutory registers under the Companies Act it can be inferred that a part of share application money received by the assessee company was not genuine. The DR could not demonstrate before us the relation between the absence of statutory registers and genuineness or otherwise of the share application money received during the year. It is not in dispute that all the share applicants had responded to the notice issued by the AO to them and have affirmed the fact of their investing money as their share application with the assessee company. The above fact at least demonstrates that all the share applicants were identifiable. The entire share application money of ₹ 8,56,00,000/- in the assessment year 2010-2011 and ₹ 9,64,00,000/- in the assessment year 2011-2012 were received through banking channel and the share applicants have duly disclosed their investment in share application to the assessee in their balance sheets and transactions were also appearing in their bank statements. We find that though the AO had observed that after going through the balance sheet of the share applicants he was not satisfied with the creditworthiness of the share applicants but could not give any cogent reasons in the assessment order for his above finding. DR also could not bring any material before us to show that what was the reason to arrive at the said finding. Thus such a non-speaking order is bad in law and unsustainable. The CIT(A) has returned a finding that the identity of share applicants, genuineness of the share transactions and creditworthiness of the share applicants were established by the various documents like bank statements, balance sheets etc. furnished by the share applicants to the AO in pursuance to the notice issued to them u/s.133(6) of the Act. - Decided against revenue Additions made on account of applying net profit rate - rejection of books of accounts u/s.145 - Held that - As during the course of the assessment proceedings, the assessee has duly produced its books of accounts along with the bills and vouchers before the AO. No defect in such books of accounts could be brought on record by the AO after examination and verification of the same. The reasons stated by the AO in the order of assessment are the reason to doubt or suspect the correctness of books of accounts which required the AO to examine the books of accounts more cautiously. The said reason does not empower the AO to reject the books of accounts. For rejecting the books of accounts the AO must point out such defect in the books of accounts which shows that the books of accounts are incomplete or incorrect or where the method of accounting provided u/s.145(1) or Accounting Standard notified u/s.145(2) have not been regularly followed by the assessee. No defect could be brought on record by the AO. In absence of the same, the AO was not justified in rejecting the books of account and brushing aside the book results and estimating the business income of the assessee. We, therefore, do not find any good reason to interfere with the order of CIT(A). Therefore, this ground of appeal of Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of additions on account of share application/capital received as unexplained cash credits under Section 68 of the Income Tax Act, 1961.
2. Deletion of additions made on account of applying net profit rate after rejection of books of accounts under Section 145 of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Deletion of Additions on Account of Share Application/Capital Received as Unexplained Cash Credits under Section 68 of the Income Tax Act, 1961:

The Revenue's appeals for the assessment years 2006-07, 2007-08, 2009-10, 2010-11, and 2011-12 were directed against the order of CIT(A) in deleting the additions made on account of share application/capital received as unexplained cash credits under Section 68 of the Income Tax Act, 1961. The AO had made these additions based on the observation that the assessee received share application money from various entities and individuals, and during the search, statutory records were not found, and notices issued under Section 133(6) to verify the identity and creditworthiness of the investors were returned unserved for some entities.

The AO concluded that the inflow of share application money was a means of money laundering, and the identity, creditworthiness, and genuineness of the transactions were not established. However, the CIT(A) deleted the additions, observing that the assessee had submitted sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions. The CIT(A) noted that the share applicants had responded to the notices, and their balance sheets, bank statements, and other documents were provided, demonstrating their capability to invest.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not provide cogent reasons for doubting the creditworthiness of the share applicants and that the identity and genuineness of the transactions were established through documentary evidence. The Tribunal also noted that the AO's order was non-speaking and lacked specific reasons for the additions. Therefore, the Tribunal dismissed the Revenue's appeals.

2. Deletion of Additions Made on Account of Applying Net Profit Rate after Rejection of Books of Accounts under Section 145 of the Income Tax Act, 1961:

The Revenue's appeals for the assessment years 2006-07, 2007-08, 2008-09, 2009-10, 2010-11, 2011-12, and 2012-13 were directed against the order of CIT(A) in deleting the additions made on account of applying net profit rate after rejection of books of accounts under Section 145 of the Income Tax Act, 1961. The AO had rejected the books of accounts on the grounds that they were not found during the search, the profit shown was low, and the sundry creditors were higher than the sundry debtors.

The CIT(A) deleted the additions, observing that the assessee had maintained regular books of accounts, which were audited and produced before the AO during the assessment proceedings. The CIT(A) noted that the AO did not find any defects in the books of accounts and that the reasons for rejection were not sufficient to justify the rejection of books. The CIT(A) also emphasized that the AO did not provide any evidence of suppression of sales or inflation of expenses.

The Tribunal upheld the CIT(A)'s decision, stating that the AO's reasons for rejecting the books of accounts were based on suspicion and not on any specific defects found in the books. The Tribunal noted that the assessee had produced its books of accounts along with bills and vouchers, which were verified by the AO, and no discrepancies were found. Therefore, the Tribunal dismissed the Revenue's appeals.

Conclusion:

The Tribunal dismissed all the appeals filed by the Revenue and upheld the CIT(A)'s orders in deleting the additions on account of share application/capital received as unexplained cash credits under Section 68 and on account of applying net profit rate after rejection of books of accounts under Section 145. The Tribunal emphasized that the AO's orders were based on suspicion and lacked specific reasons or evidence to justify the additions. The Tribunal also dismissed the cross objections filed by the assessee as infructuous.