2019 (11) TMI 1187 - AT - Income Tax

Addition u/s 68 being share application money received by the assessee - HELD THAT - Assessee was not provided with any adverse material which has been used by the Assessing Officer while framing the assessment a statement made by the ld. counsel for the assessee and not controverted by the ld. DR. Considering the totality of the facts of the case and in the interest of justice we deem it proper to restore this issue to the file of the AO with a direction to grant one final opportunity to the assessee to substantiate with evidence to his satisfaction regarding the identity and credit worthiness of the share applicants and the genuineness of the transactions. The Assessing Officer if feels necessary may summon the directors of the investor companies or ask the assessee to produce the directors of the investor companies. Addition to be interest income for this year - HELD THAT - CIT(A) upheld the action of the Assessing Officer on the ground that the assessee could not substantiate by producing necessary evidence that the balance interest has been offered to tax in the subsequent year after the same was credited in the bank account of the assessee. It is the submission of assessee that the interest income has been shown on receipt basis and since the assessee has offered the same to tax in the subsequent year no addition is called for during this year. We find some force in the argument of the ld. counsel that an income cannot be taxed twice. However it is a mater of record that the assessee has not substantiated by producing necessary evidence either before the AO or before the CIT(A) that the balance interest has been offered to tax in the subsequent year. Penalty levied u/s 271(1)(c) - HELD THAT - We find the quantum appeal has been restored to the file of the Assessing Officer for fresh adjudication. Therefore the penalty so levied by the Assessing Officer and upheld by the CIT(A) has no legs to stand - Penalty levied by the AO and sustained by the CIT(A) is cancelled. However the Assessing Officer is at liberty to initiate fresh penalty proceedings and levy penalty u/s 271(1)(c) if so required after completion of the assessment. The grounds raised by the assessee are accordingly allowed.

Issues Involved:
1. Sustaining the addition of Rs. 3,00,00,000/- credited as share application money under section 68 of the IT Act.
2. Sustaining the addition of Rs. 2,83,160/- alleged to be interest income for the year.
3. Confirming the penalty of Rs. 98,34,200/- levied under section 271(1)(c) of the IT Act.

Issue-wise Detailed Analysis:

1. Sustaining the addition of Rs. 3,00,00,000/- credited as share application money under section 68 of the IT Act:

The assessee, a private limited company engaged in manufacturing craft paper, filed its return of income declaring a total income of Rs. 17,07,650/-. During assessment, the Assessing Officer (AO) noted an increase in share capital and share premium aggregating to Rs. 3 crores. The assessee issued 3 lakh shares at a premium of Rs. 90/- per share. The AO asked the assessee to prove the identity, genuineness, and creditworthiness of the shareholders. Despite submitting photocopies of share application forms and other documents, the AO found non-compliance and added Rs. 3 crores to the total income under section 68.

The CIT(A) admitted additional evidence and called for a remand report, ultimately confirming the AO's addition. The assessee argued that it had discharged its onus by producing relevant documents and that the low income of the investor companies could not be a ground to disbelieve the investments. The assessee cited several cases, including PCIT vs. Goodview Trading (P) Ltd. and ITO vs. Computer Home Information Plus Pvt. Ltd., to support its position.

The Tribunal found that subsequent decisions by the Hon'ble Supreme Court in NRA Iron & Steel Pvt. Ltd. and the Hon'ble Delhi High Court in NDR Promoters Pvt. Ltd. were not considered. The Tribunal restored the issue to the AO to grant one final opportunity to the assessee to substantiate the identity, creditworthiness of the share applicants, and the genuineness of the transactions. The AO was directed to decide the issue afresh, keeping in mind the apex court's and Delhi High Court's decisions.

2. Sustaining the addition of Rs. 2,83,160/- alleged to be interest income for the year:

The AO observed an interest income discrepancy, where the ITS details showed Rs. 3,03,754/- while the Profit & Loss Account declared Rs. 20,594/-. The AO added Rs. 2,83,160/- to the income, which was upheld by the CIT(A) due to the assessee's failure to substantiate the claim with evidence.

The assessee contended that the interest income was declared on a receipt basis and offered to tax in the subsequent year. The Tribunal found merit in the argument that income cannot be taxed twice. However, due to a lack of evidence, the Tribunal restored the issue to the AO, directing the assessee to substantiate its claim and the AO to decide the issue as per fact and law.

3. Confirming the penalty of Rs. 98,34,200/- levied under section 271(1)(c) of the IT Act:

The penalty appeal was linked to the quantum appeal, which was restored to the AO for fresh adjudication. Consequently, the penalty levied by the AO and upheld by the CIT(A) was cancelled. However, the AO was given the liberty to initiate fresh penalty proceedings under section 271(1)(c) after completing the assessment.

Conclusion:

The appeal in ITA No.3456/Del/2017 was partly allowed for statistical purposes, and ITA No.7644/Del/2018 was allowed. The decision was pronounced in the open court on 25.11.2019.

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