2018 (12) TMI 195 - AT - Income Tax

Notice U/s 153A - Addition u/s 68 - unexplained share application money - Held that - There is an identical pattern of deposits made in the bank accounts of all share applicant companies just prior to the payment to the assessee which clearly reveals the fact on record that the transactions are not free from doubt or tainted with modus-operandi of converting the unaccounted income of the assessee into share application money. Hence, the burden was shifted to the assessee to produce further evidence to clear the shadow of bogus transactions. Failure on the part of the assessee to be established the genuineness of the transactions beyond any doubt would amount non-discharge of the burden and consequently it cannot be said that the assessee has proved its claim. The onus of proving the claim primarily lies on the assessee and once the assessee brings the primary evidence on record in support of claim, the burden is shifted on the Assessing Officer to disprove the evidence produced by the assessee. AO has brought on record the counter facts or evidence then the burden is again shifted on the assessee to prove the transaction beyond any doubt. Hence, the discharging of primary burden itself is not enough when AO has made out a case from the bank statements that there is a deposit of equal amount just prior to the transfer of the money by these companies to the assessee then the assessee was required to prove and clear the said doubt about the source of payment made by these share applicant companies. Therefore, we find that this matter requires a thorough and deep investigation of fact and to find about the trail of money as it was deposited in the bank accounts of the share applicant companies just prior to the payment to the assessee. Further the status of the allotment of share to these share applicants is also to be examined in the context of the present holding of the same. It is relevant to verify the holding of the alleged allotment of the shares of the assessee company by all these seven companies and in case the shares were finally transferred back to the existing promoters or share holders of the assessee company or the family members or closed relatives of the promoters of the assessee company then it will go against the assessee. Accordingly we set aside this issue to the record of the Assessing Officer to carry out a proper investigation and trace out the trail of the money found deposited in the bank account of the share applicants and further the present status of the holding of those shares allotted to the share applicant companies. Incriminating material found in search even when the assessment proceedings for the year under consideration was not pending as on the date of search - Held that - It is admitted fact that the assessee did not raise this issue before the authorities below, therefore, the scope of sub-section (4) of Section 253 cannot be extended to the scope of filing of the appeal as per sub-section (1) of Section 153 of the Act. There is no dispute that once the C.O. is filed and admitted then the same has to be adjudicated in the manner as an appeal is presented. However, the scope of C.O. cannot be beyond the order of the ld. CIT(A) which is against the party who is filing the C.O. Once a particular issue was not raised before the ld. CIT(A) then the question of deciding the same against the assessee does not arise. Disallowance of expenditure incurred for increasing the authorized share capital of the assessee company trading the same as capital expenditure - Held that - No incriminating material found during the course of search and therefore, the disallowance made by the Assessing Officer is not sustainable - Having considered the rival submissions as well as the relevant material on record we find that for the A.Y. 2013-14 it was not pending as on the date of search as the limitation for issuing the notice U/s 143(2) of the Act had expired before the date of search and therefore, the decision of the Tribunal for the A.Y. 2012-13 is applicable for the A.Y. 2013-14 also. Undisclosed income of the assessee based on the statement - Held that - Since the assessee has now explained that there was reverse entry of the equal amount passed in the subsequent year and offered for tax, therefore, the addition would be a double tax on the same amount. Since this aspect was not considered by the authorities below, therefore, we direct the Assessing Officer to consider this issue and then decide the same in accordance with the law as well as decision relied upon by the assessee. Needless to say the assessee be given an appropriate opportunity of hearing. Disallowance of interest paid on alleged payment of TDS - Held that - Though TDS is not an income tax levied on the profit of the appellants business nevertheless the interest on delayed payment of TDS is due to a violation of rule for timely payment of TDS and same is compensated to government by interest under mandatory provision of law. However, this could not be said normal incidence of business and therefore, could not be covered U/s 37 of the IT Act

Summary

Issues Involved:
1. Deletion of addition made by AO under Section 68 of the Income Tax Act on account of unexplained share application money.
2. Failure to produce Directors or authorized representatives for verification.
3. Non-establishment of creditworthiness of investing companies.
4. Ignoring identical deposits in the bank accounts of investing companies.
5. Deletion of addition on account of unexplained advances not recorded in books of accounts.
6. Maintainability of the additional ground raised in the Cross Objection (C.O.).
7. Disallowance of expenditure for increasing authorized share capital.
8. Addition of undisclosed income based on account statement discrepancies.
9. Disallowance of interest paid on late payment of TDS.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68:
The Revenue challenged the deletion of ?1.30 crores added by the AO under Section 68 of the Income Tax Act, 1961, on the grounds of unexplained share application money. The assessee, a private limited company, filed its return of income, which was scrutinized post a search and seizure operation. The AO noted share application money received from various parties and demanded verification of the nature of business, source of investment, and financial statements of the share applicants. The AO concluded that the share application money was undisclosed income and made an addition under Section 68. The assessee contended before the CIT(A) that it had discharged its onus by producing relevant documents. The CIT(A) deleted the addition, which the Revenue appealed against.

2. Failure to Produce Directors or Authorized Representatives:
The Revenue argued that the assessee failed to produce Directors or authorized representatives of the investing companies for verification, thus leaving the genuineness of the share application money unestablished. The AO had specifically asked for the presence of these individuals to verify the transactions, but the assessee did not comply.

3. Non-establishment of Creditworthiness:
The AO contended that the creditworthiness of the investing companies was not established as they lacked profit-earning apparatus and their income did not justify the investment amounts. The CIT(A) overlooked these aspects while deleting the addition.

4. Ignoring Identical Deposits:
The AO highlighted that identical deposits were made in the bank accounts of the investing companies immediately before the investments were transferred to the assessee. This pattern suggested that the transactions were not genuine. The CIT(A) ignored these findings while deleting the addition.

5. Deletion of Addition on Account of Unexplained Advances:
The Revenue also challenged the deletion of ?13,00,000 added by the AO due to unexplained advances recorded in seized documents but not found in the books of accounts. The CIT(A) deleted this addition as well, which the Revenue contested.

6. Maintainability of Additional Ground Raised in C.O.:
The assessee raised an additional ground in the C.O. stating that the additions were made without any incriminating material found in the search, and the assessment proceedings were not pending as of the search date. The Tribunal held that the scope of the C.O. under Section 253(4) is limited to challenging the order of the CIT(A) or any part thereof. Since the assessee did not raise this issue before the lower authorities, it could not be raised in the C.O.

7. Disallowance of Expenditure for Increasing Authorized Share Capital:
The assessee contested the disallowance of expenditure incurred for increasing the authorized share capital, which was treated as capital expenditure by the AO. The Tribunal referred to its earlier decision, which held that such disallowance is not sustainable in the absence of incriminating material found during the search.

8. Addition of Undisclosed Income Based on Account Statement Discrepancies:
The assessee challenged the addition of ?70,500 as undisclosed income based on discrepancies in the account statement with M/s Nahar Filling Station. The Tribunal directed the AO to verify the assessee's claim that the discrepancy arose due to a reversed entry in the subsequent year, where the amount was offered for tax.

9. Disallowance of Interest Paid on Late Payment of TDS:
The assessee contested the disallowance of ?50,885 on account of interest paid on late payment of TDS. The Tribunal upheld the disallowance, stating that interest on TDS is not an allowable expenditure under Section 37 of the Income Tax Act.

Conclusion:
The Tribunal allowed the Revenue's appeals for statistical purposes, directing a thorough investigation into the share application money and the present status of shareholding. The additional ground in the C.O. was dismissed, and the disallowance of expenditure for increasing authorized share capital was confirmed for the A.Y. 2014-15. The addition based on account statement discrepancies was remanded to the AO for verification, and the disallowance of interest on late payment of TDS was upheld.