2019 (1) TMI 109 - AT - Income Tax

Addition u/s 68 - undisclosed share application money received by the assessee-company - Held that - Investors who have been examined by the A.O. on oath were not subjected to cross-examination on behalf of the assessee, therefore, their statements cannot be read in evidence against the assessee. The only material left for consideration was the documentary evidences filed by the assessee on record which supports the explanation of assessee that assessee received share application money from large number of investors who have made very small investment in assessee-company in each case. No evidence has been brought on record if the investment made by the investors have actually emanated from the coffers of the assessee so as to enable it to be treated as undisclosed income of the assessee. Therefore, considering the smallness of the issue and the fact that assessee was incorporated only in preceding assessment year, therefore, in the light of decision of Bharat Engineering & Construction Co. (1971 (9) TMI 14 - SUPREME COURT), there were no justification for the authorities below to sustain the addition. - Decided in favour of assessee Addition on account of difference in balance of one creditor - Held that - ustification to interfere with the Orders of the authorities below. Learned Counsel for the Assessee submitted that no addition can be made under section 68 of the I.T. Act on account of difference in balance of the creditor. I do not agree with the submissions of the Learned Counsel for the Assessee. Section 68 would be applicable if assessee failed to explain sum of the amounts credited in the books of account of assessee to the satisfaction of the A.O. The party has however, denied of having outstanding balance with the assessee in response to notice under section 133(6) of the I.T. Act. Therefore, addition was correctly made against the assessee - decided against assessee Addition u/s 68 on account of loan received from one Director - Held that - Creditworthiness of the creditor have been accepted by the authorities below and that the creditor is connected with the assessee-company, therefore, the matter requires reconsideration in the light of documentary evidence and statement of affairs of the creditor along with ITR filed on record. I, accordingly, set aside the Orders of the authorities below and restore the issue to the file of A.O. with a direction to re-decide this issue, by giving reasonable, sufficient opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Addition under section 68 of the I.T. Act on account of share application money received by the assessee-company.
2. Addition on account of difference in balance of one creditor.
3. Addition under section 68 of the I.T. Act on account of loan received from one Director.

Issue-wise Detailed Analysis:

1. Addition under section 68 of the I.T. Act on account of share application money received by the assessee-company:

The assessee challenged the addition of ?29,32,900/- made by the A.O. under section 68 of the I.T. Act, which was upheld by the Ld. CIT(A). The addition was categorized into three parts:
- ?1,48,100/- from three depositors who denied having invested the amount.
- ?11,73,800/- from 23 depositors whose investments were deemed not genuine by the A.O.
- ?16,11,000/- from 33 depositors whose creditworthiness was questioned.

The assessee contended that proper opportunity was not given to ensure the attendance of depositors, and the statements were recorded without the assessee's knowledge or the right to cross-examine, violating principles of natural justice. The assessee provided various documents to prove the genuineness of the transactions, including share certificates, applications, ROC documents, and confirmations. The Ld. CIT(A) confirmed the addition, noting that some investors denied the investments and others had low incomes.

The Tribunal found that the assessee provided sufficient documentary evidence to prove the identity, creditworthiness, and genuineness of the transactions. It was noted that the statements of investors recorded at the back of the assessee without cross-examination could not be used against the assessee. The Tribunal concluded that there was no evidence that the investments emanated from the assessee's own funds and deleted the addition, citing the Supreme Court decision in CIT vs. Bharat Engineering & Construction Co.

2. Addition on account of difference in balance of one creditor:

The assessee challenged the addition of ?2,70,710/- for a sundry creditor, M/s. Drishya Overseas New Delhi, who denied having an outstanding balance with the assessee. The Ld. CIT(A) confirmed the addition, and the Tribunal upheld this decision, stating that section 68 applies when the assessee fails to explain the credited amounts satisfactorily. The creditor's denial justified the addition.

3. Addition under section 68 of the I.T. Act on account of loan received from one Director:

The assessee contested the addition of ?7,46,774/- out of ?9,13,654/- received as an unsecured loan from Shri Said Ahmed. The A.O. noted that cash deposits were made before issuing the cheque to the assessee, and the creditor's explanation lacked documentary evidence. The Ld. CIT(A) upheld the addition, citing insufficient proof of creditworthiness.

The Tribunal found that the matter required reconsideration, noting that part of the creditor's creditworthiness was accepted and that the creditor was a Director of the assessee-company. The Tribunal set aside the orders and remanded the issue to the A.O. for re-evaluation, considering the documentary evidence and the creditor's statement of affairs.

Conclusion:

The appeal was partly allowed, with the addition under section 68 for share application money being deleted, the addition for the creditor's balance being upheld, and the addition for the Director's loan being remanded for reconsideration.

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