2019 (2) TMI 371 - AT - Income Tax

Penalty u/s 271(1)(C) - addition u/s 68 - high share premium - Held that - When immediate source of the money was explained, the initial onus casted upon assessee got discharged and nothing more could be asked from him The details of the ongoing projects have been placed on record. Under these circumstances, the revenue, in our opinion, by questioning the wisdom / prudence of the investor could not proceed to make addition in the hands of the assessee by invoking the provisions of Section 68 without bringing on record credible contrary evidences. The additions could not be made merely on the basis of suspicion. Nothing on record indicate that any cash got exchanged between the assessee and the investor to suggest that the unaccounted money belonging to the assessee was routed in the accounts as Share Application Money. For the sake of completeness, we find that even the newly inserted provisions of Section 56(2)(viib) could not be applied to the facts of the case since these provisions have been inserted by Finance Act 2012 with effect from 01/04/2013 only and further the same has also not been invoked by the revenue - the impugned addition u/s 68 in the hands of the assessee was not justified and therefore, by deleting the same, we allow this ground of appeal. Since we have deleted quantum additions penalty against the same do not survive. - Decided in favour of assessee

Summary

Issues:
Quantum appeal regarding confirmation of certain quantum additions and penalty under section 271(1)(C).

Quantum Appeal Analysis:
The assessee, a resident corporate entity engaged in construction activities, contested the additions made during scrutiny assessment for AY 2011-12. The primary issue was the treatment of share application money received from an investor as unexplained cash credit under section 68. The assessee provided evidence of the investor's identity, but the AO raised concerns about the high share premium received. Despite explanations and supporting documents, the AO treated the share application money as unexplained cash credit. The Tribunal found that the investor's creditworthiness was established, and the share premium was justified based on the company's projects and financial position. The Tribunal held that the additions were unjustified and deleted the section 68 addition. However, additions for bad debts and preliminary expenses were confirmed due to lack of details provided by the assessee.

Penalty under Section 271(1)(C) Analysis:
The penalty under section 271(1)(C) was imposed against quantum additions, including unexplained cash credit, labor charges, bad debts, and preliminary expenses. Since the Tribunal deleted the unexplained cash credit addition, the penalty against it was also removed. The penalty for labor charges was considered a statutory disallowance and not subject to penalty. The remaining additions lacked evidence but did not indicate concealment of income or furnishing inaccurate particulars. Consequently, the penalty for these additions was deleted, leading to the allowance of the appeal against the penalty.

In conclusion, the quantum appeal was partly allowed, with the section 68 addition being deleted, while the penalty appeal was entirely allowed due to the deletion of penalty against the quantum additions. The judgment emphasized the importance of establishing the source of funds and providing necessary details to support claims, highlighting the significance of evidence in tax assessments and penalty impositions.