2019 (6) TMI 604 - AT - Income Tax

Addition u/s 68 - unproved credits in the grab of share application money/share capital and share premium - AO concluded that the assessee failed to explain creditworthiness of the share subscriber companies and genuineness of the transactions - HELD THAT - Entire share capital/share premium money of ₹ 1.80 crore has been shown to be received by the assessee in cash from the share subscriber companies. This amount of share capital/share premium money shown to have been received by the assessee company has been further shown to have been invested in purchase of the shares of the other companies that too in cash. The investment by cash is not a normal phenomena because both the assessee company and the share subscriber companies in normal course are expected to transact through banking channel. Making investment through cash in itself raises doubt and therefore it was the onus of the assessee to explain the source of cash invested by way of share capital/share premium into its cashbook. The assessee has merely furnished confirmation from said subscriber of the share capital without any detail of source of the cash in the hands of the subscriber companies. Assessee even failed to produce books of accounts and vouchers etc. of the assessee company before the AO. In the independent enquiry made by the AO through Inspector, those companies were not found at the addresses given and in response to summons issued, none appeared on behalf of those companies before the AO to explain the source of cash in their hands. It cannot be said that the assessee has discharged its onus of explaining nature and source of the credit as required u/s 68. In the instant case, the AO has not relied only on the report of the Inspector or on the statement of Sri. K.K. Bansal, who was engaged in providing accommodation entries and the AO has taken into consideration the failure of the assessee in explaining the creditworthiness of the share subscriber companies as well as genuineness of the transaction. In view of the recent decision of the Hon ble Supreme Court in the case of NRA Iron Steel Pvt. Ltd. 2019 (3) TMI 323 - SUPREME COURT wherein the decision of Lovely export P Ltd 2008 (1) TMI 575 - SC ORDER has also been considered, we find that the assessee failed to establish the creditworthiness of the share subscriber parties and genuineness of the transaction and accordingly, we set aside the finding of the CIT(A) on the issue in dispute and restore the finding of the Assessing Officer of making addition u/s 68. - the appeal of the Revenue is allowed. Income from Other Sources - no books of accounts or vouchers in support of purchase and sales were produced - CIT(A) has admitted the additional evidence in the form of books of account or bills and vouchers etc., and deleted the addition however, no opportunity was provided to the AO as required under Rule 46A - HELD THAT - There is no doubt that the AO made addition in absence of bills of purchase and sales produced by the assessee. The Ld. CIT(A) himself has admitted this fact while adjudicating the issue, however, he failed to follow the procedure provided in Rule 46A of the Income Tax Rules - In view of the clear violation of the Rule 46A(3) of the Income Tax Rules, we feel it appropriate to restore this issue to the file of the CIT(A) for deciding afresh after following the due process of law. - Appeal of revenue allowed for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition of ?1,80,00,000 under Section 68 of the IT Act on account of unproved credits.
2. Deletion of addition of ?6,14,000 made by the AO as income from other sources.
3. Whether the assessee submitted all books of account before the Assessing Officer.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?1,80,00,000 under Section 68:
The Revenue challenged the deletion of ?1,80,00,000 added by the Assessing Officer (AO) under Section 68 of the IT Act, which pertains to unproved credits in the form of share application money/share capital and share premium. The AO made this addition due to the assessee's failure to provide necessary details such as identity, genuineness, and creditworthiness of the share subscribers, despite multiple notices and opportunities. The AO observed that the share capital and premium were received in cash from eight parties, who had negligible income and common directors, and the transactions were not supported by bank statements. Local enquiries revealed no business activity at the addresses of the subscriber companies, and they were found to be controlled by an individual engaged in providing accommodation entries.

The CIT(A) deleted the addition, relying on the assessee's submission of books of account and other documents, and the principle that once primary evidence is submitted, the onus shifts to the AO to prove otherwise. The CIT(A) held that the assessee had discharged its onus under Section 68. However, the Tribunal, relying on various judicial precedents including the Supreme Court's decision in NRA Iron & Steel Pvt. Ltd., found that the assessee failed to establish the creditworthiness of the subscribers and the genuineness of the transactions. Consequently, the Tribunal restored the AO's addition of ?1,80,00,000 under Section 68.

2. Deletion of Addition of ?6,14,000 as Income from Other Sources:
The Revenue also challenged the deletion of ?6,14,000 added by the AO as income from other sources due to the assessee's failure to produce books of account and vouchers. The CIT(A) admitted additional evidence in the form of books of account and vouchers and deleted the addition after examining them. However, the Tribunal noted that the CIT(A) failed to follow the procedure under Rule 46A of the Income Tax Rules, which requires providing the AO an opportunity to examine the additional evidence. Therefore, the Tribunal restored this issue to the CIT(A) for fresh adjudication following the due process of law.

3. Submission of Books of Account:
The AO contended that the assessee did not submit all books of account during the assessment proceedings. The CIT(A), however, accepted the books of account and vouchers produced during the appellate proceedings and deleted the additions based on this evidence. The Tribunal found that the CIT(A) did not adhere to Rule 46A, which mandates giving the AO a chance to examine any new evidence. As a result, the Tribunal remanded the matter back to the CIT(A) for reconsideration with proper adherence to procedural requirements.

Conclusion:
The Tribunal allowed the appeal of the Revenue partly for statistical purposes, sustaining the addition of ?1,80,00,000 under Section 68 and remanding the issue of ?6,14,000 for fresh adjudication by the CIT(A) following the due process of law. The order was pronounced in the open court on 10th June 2019.