2018 (7) TMI 1555 - AT - Income Tax

Protective addition made in the hands of the assessee - addition u/s 68 - assessee failed to offer explanation with documentary evidence to the satisfaction of the Assessing Officer - Held that - AO as well as the CIT(A) was not correct in making the additions on protective/substantive basis. Nothing has been found in search of Rock Land on the basis of which it can be said that Rock Land has paid anything out of books to these companies, which had arranged share application money to the group. As regards the issue of difference in the amount received and transferred to Rock Land Hospital group, in the case of Sukumar the difference is ₹ 3,50,080/- and in the case of Sanskriti, the difference is ₹ 2,50,638/-. From the records it can be seen that these amounts were incurred by assessee on maintaining the corporate entity of the Companies. The Assessing Officer has not brought on record to establish that these are not incurred for the purpose of business. It is pertinent to note that while passing Assessment orders in cases of Purnendu Traders and Ashwin Pharmaceuticals, there is no addition of this nature made while framing assessment under section 143(3) of the Act. Thus, the Revenue cannot take different stand in respect of these two assessee. Therefore, CIT(A) as well as Assessing Officer was not correct in making substantive/protective additions in the hands of the assessees herein. Since the Ld. AR/assessee admitted that there is difference in the amount received and transferred to Rock Land Hospital group of ₹ 3,50,080/- in case of Sukumar and ₹ 2,50,638 in case of Sanskriti, the same needs to be verified by the Assessing Officer. Therefore, we direct the Assessing Officer to verify this difference as per the findings given hereinabove.

Summary

Issues Involved:

1. Legality of considering share application money/share premium as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
2. Validity of making additions on a substantive basis despite the addition being made in the hands of the ultimate beneficiary.
3. Application of Section 56(2)(viib) regarding excess share premium.
4. Addition of notional commission income.
5. Consistency in the approach of the revenue and non-discrimination among assessees.

Detailed Analysis:

1. Legality of Considering Share Application Money/Share Premium as Unexplained Cash Credit under Section 68:

The appeals challenged the orders where the CIT(A) considered share application money/share premium as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The Assessing Officer (AO) observed that the assessee received ?1,23,50,000/- and ?10,39,00,000/- respectively from various entities. The AO required the assessee to produce the share applicants along with their books of accounts and bank statements. The assessee failed to produce these documents, leading the AO to treat the share application money as unexplained cash credit due to the failure to establish the identity, creditworthiness, and genuineness of the transactions.

2. Validity of Making Additions on a Substantive Basis Despite the Addition Being Made in the Hands of the Ultimate Beneficiary:

The AO initially made the addition on a protective basis, noting that the ultimate beneficiary of the funds was M/s Rockland Hospitals Pvt. Ltd. and M/s Rockland Hotels Ltd. The CIT(A) converted these protective additions into substantive additions. The appeals argued that the ultimate beneficiary had already admitted the funds in their assessments, and thus, the addition should not be made substantively in the assessee's hands. The Tribunal agreed that the CIT(A) erred in converting the protective additions into substantive ones, as the ultimate beneficiary had already been taxed on these amounts.

3. Application of Section 56(2)(viib) Regarding Excess Share Premium:

The AO also invoked Section 56(2)(viib) of the Act, adding ?90,57,490/- as income from other sources, arguing that the share premium received exceeded the market value of the shares. The CIT(A) deleted this addition, and the revenue did not appeal against this deletion. The Tribunal noted that the CIT(A) correctly held that Section 56(2)(viib) was not applicable in this case.

4. Addition of Notional Commission Income:

The AO added a notional commission income of ?2,47,000/-, assuming the assessee earned commission by providing accommodation entries. The Tribunal found no evidence of such commission being paid by Rockland Hospitals, as no such findings were made during the search of Rockland Group. The Tribunal directed the AO to verify the utilization of the amounts claimed as administrative expenses by the assessee.

5. Consistency in the Approach of the Revenue and Non-Discrimination Among Assessees:

The appeals argued for consistency in the revenue's approach and non-discrimination among assessees involved in similar transactions. The Tribunal agreed, noting that no additions were made for similar transactions in the cases of Purnendu Traders and Ashwin Pharmaceuticals. Thus, the revenue's approach should be consistent, and no discrimination should be made.

Conclusion:

The Tribunal concluded that the CIT(A) and the AO were incorrect in making substantive/protective additions in the hands of the assessees. The Tribunal directed the AO to verify the difference in the amounts received and transferred to Rockland Hospitals and decide the matter as per law, ensuring the assessee is given an opportunity of hearing by following the principles of natural justice. The appeals were partly allowed for statistical purposes.