2018 (7) TMI 131 - AT - Income Tax

Addition u/s 68 - identity of the person giving the credit has not been proved and also creditworthiness has also not been established - Held that - Evidences which have been furnished by the assessee have not been discussed; and if the Director has not been found then it cannot be said that identity of the company is not established especially in wake of income tax records and share allotment form and other host of documents. If in the inquiry, by the ITI it was found that on the said addressee the company of the Director was not traceable, then AO should have confronted to the assessee and assessee should have been given the opportunity to produce the concerned person from the said company. CIT (A) in his order though sought for the remand report but has not given the mandate to the AO to confront the same to the assessee - Matter should be restored back to the file of the AO and assessee will ensure full corporation and produce the concerned person from the said company and or provide correct details of the said company for issuing of summon - Decided in favour of assessee for statistical purposes.

Summary

Issues:
Cross appeals by assessee and revenue against order dated 29.12.2014 for assessment year 2011-12. Revenue's appeal disputed additions of ?6,13,630 for vehicle repair, ?14,50,000 u/s 68. Revenue's appeal dismissed due to tax effect below ?10 lakhs. Assessee challenged ?15 lakhs addition u/s 68 for investment by M/s. Kangaroo Financial Services Pvt. Ltd. Assessee provided evidence including share application form, ITR, bank statement, confirmation letter, but AO found Director of M/s. Kangaroo Financial Services untraceable. CIT(A) confirmed addition, citing lack of proof of identity and creditworthiness. Assessee argued all necessary documents were submitted, AO's inquiry was flawed, and CIT(A)'s finding was erroneous. Tribunal found assessee's evidence not discussed, directed AO to verify identity of company, provide opportunity to produce concerned person, and re-examine source of credit. Tribunal allowed assessee's grounds for restoration to AO's file.

Analysis:
The judgment involved cross appeals by the assessee and the revenue against an order for the assessment year 2011-12. The revenue's appeal contested additions of ?6,13,630 for vehicle repair and ?14,50,000 under section 68, but it was dismissed due to the tax effect being below ?10 lakhs as per CBDT Circular No. 21/2015. The assessee challenged the ?15 lakhs addition under section 68 related to investment by M/s. Kangaroo Financial Services Pvt. Ltd. The assessee provided various documents to substantiate the transaction, including share application form, ITR, and bank statements. However, the AO found the Director of the company untraceable, leading to doubts about the transaction's genuineness. The CIT(A) upheld the addition, emphasizing the lack of proof of identity and creditworthiness of the creditor. The assessee contended that all necessary documents were submitted, and the AO's inquiry was flawed. The Tribunal noted that the assessee's evidence was not adequately discussed, directing the AO to verify the company's identity and provide an opportunity to produce the concerned person for examination.

The Tribunal highlighted the need for a thorough examination of the source of credit and directed the AO to reevaluate the case after considering all material provided by the assessee. The Tribunal found fault with the AO's failure to confront the assessee with the findings of the inquiry and directed the case to be restored to the AO's file for proper verification. The Tribunal allowed the assessee's grounds for restoration for further examination. The judgment emphasized the importance of due process and the opportunity for the assessee to substantiate their case fully. Ultimately, the appeal of the revenue was dismissed, and the appeal of the assessee was allowed for statistical purposes, indicating a procedural victory for the assessee in terms of further examination and verification by the tax authorities.