2020 (2) TMI 932 - AT - Income Tax

Unexplained share capital u/s 68 - neither the creditworthiness of these creditors nor the genuineness of transactions were established - CIT (A) has deleted the addition merely for the reason that the ld AO did not specify which director is to be presented - HELD THAT - In case of M/s. Sunshine Infrabuild Pvt. Ltd at the Page No. 87 of the order of ld CIT(A) the assessee produced supervisor of that company and his statement was recorded, the ld CIT (A) deleted the addition on the statement of supervisor. We failed to appreciate that how the ld CIT (A) deleted the addition based on the statement of the supervisor who is not aware about the creditworthiness or genuineness of the transaction. We also failed to understand that when the directors were required to be produced, how the authorised representative could be produced in lieu of those directors. CIT (A) according to us has grossly erred in accepting the statement of authorised representative. He has also merely gone by the judicial precedents without looking at the fact that all these company who have invested with the assessee does not have adequate source of income as they are showing meager income. Those companies do not have any interest of any appreciation in the share value of the Assessee Company as well as receipt of any dividend from the assessee company. Assessee is a private limited company how it approached so many of the subscribers in different geographical locations and how they were convinced and on what conviction they invest in assessee company of such huge magnitude. AO has made the addition apart from other things the fact that despite repeated opportunities the assessee has failed to produce the directors of investor companies. The ld CIT (A) deleted the whole addition of non-Kolkata based companies even on the statement of the supervisor. Further, the assessee was asked to produce the directors of those companies at the fag end of the assessment proceedings. We failed to understand how the ld CIT (A) has deleted the addition of non-Kolkata based entities without examining the directors. He also did not exercise his own powers of inquiry. We set aside the appeal of the revenue as well as of the assessee back to the file of the ld AO with a direction to the assessee to prove the identity, creditworthiness of those depositors as well as genuineness of the whole transactions. The assessee is specifically directed to produce directors of the companies who are investors in the assessee company before the ld AO within four months from the date of this order. AO may examine the details produced by the assessee and examine the directors of all the companies to test identity, creditworthiness of their investment as well as genuineness of the transactions. Assessee may substantiate its claim by producing any further evidences, which it could not produce before ld AO due to the opportunity at the fag end of the assessment proceedings; the ld AO may also conduct any such inquiry, which is required to be carried out by him. After that, ld AO may decide the issue of applicability of section 68 of the act on these appeals afresh in accordance with law. - Appeals allowed for statistical purposes

Issues Involved:
1. Deletion of addition under Section 68 on account of unexplained share capital.
2. Jurisdictional issues under Sections 153A and 143(2).
3. Principles of natural justice and adequacy of inquiry by the Assessing Officer (AO).
4. Charging of interest under Sections 234A, 234B, and 234C.

Detailed Analysis:

1. Deletion of Addition under Section 68 on Account of Unexplained Share Capital:
The primary issue revolves around the deletion of addition under Section 68, where the AO added unexplained share capital received by the assessees. The AO contended that neither the creditworthiness of the creditors nor the genuineness of the transactions was established. The CIT(A) deleted the addition for non-Kolkata based companies but confirmed the addition for Kolkata based companies. The Tribunal observed that the AO made the addition based on the inability of the assessee to produce the directors of the investor companies and the lack of substantial income of these companies. The CIT(A) deleted the addition for non-Kolkata based companies without examining the directors, which was deemed erroneous by the Tribunal. The Tribunal directed the assessee to produce the directors of the investor companies before the AO for examination to establish the identity, creditworthiness, and genuineness of the transactions.

2. Jurisdictional Issues under Sections 153A and 143(2):
The assessee challenged the jurisdiction of the AO to assess under Section 153A and the framing of the assessment order under Section 143(3)/153A without issuing and serving the jurisdictional notice under Section 143(2). The Tribunal did not delve deeply into this issue but set aside the appeals to the AO for fresh assessment, implying that these jurisdictional issues would be reconsidered during the reassessment process.

3. Principles of Natural Justice and Adequacy of Inquiry by the AO:
The assessee argued that the CIT(A) confirmed the addition without observing the principles of natural justice and that the AO did not conduct a proper inquiry. The Tribunal noted that the AO asked the assessee to produce the directors at the fag end of the assessment proceedings, which was unreasonable. The Tribunal emphasized that the CIT(A) should have exercised his powers of inquiry and not merely relied on judicial precedents. The Tribunal directed the AO to conduct a thorough inquiry by examining the directors of the investor companies and to allow the assessee to produce any additional evidence.

4. Charging of Interest under Sections 234A, 234B, and 234C:
The assessee contested the charging of interest under Sections 234A, 234B, and 234C. The Tribunal did not specifically address this issue in detail but implied that the matter would be reconsidered during the reassessment process.

Conclusion:
The Tribunal set aside the orders of the CIT(A) and remanded the cases back to the AO for a fresh assessment. The AO was directed to examine the directors of the investor companies to establish the identity, creditworthiness, and genuineness of the transactions. The Tribunal allowed the appeals of both the revenue and the assessee for statistical purposes and dismissed the solitary cross objection filed by the assessee. The order was pronounced in open court on 05/02/2020.

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