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2021 (1) TMI 96 - AT - Income TaxAddition u/s 68 - unexplained credit - CIT-A deleted addition admitting additional evidence - as argued AO has not been provided adequate opportunity to go through the additional evidences - HELD THAT - In the additional evidence noted by the ld. CIT(A), which was said to have been remanded to the A.O. for comments, there is only mention of bank statement, annual report of KMC and confirmation from it. In his order, the ld. CIT(A) has also referred and relied that the copy of share subscription agreement between KMC Constructions Ltd. B. Seenaiah Coo., Kanwaldeep Investment Co. P. Ltd. and appellant company and promoters dated 14.2.2008 has been filed. From this, he opined that this sets out the plans of the Appellant company, the milestones for allotment of shares, the plan to go for an IPO at a later stage, and conversion schedule in various scenarios. This agreement was not remanded to the A.O. as evident from the order of ld. CIT(A). Hence, clearly the ld. CIT(A) has erred in admitting that said document in violation of Rule 46A. It is settled law that rule of natural justice are applicable equally to both the parties. CIT appeals had committed an error in not giving the assessing officer proper opportunity to go through the additional evidences and offer his comments. After accepting the additional evidences, the CIT appeals has summarily held that from the examination thereof he finds that the share applicant company has sufficient profit and there is confirmation on record. In this regard, there is no reference to the detailed financials of the company in the order of the learned CIT appeals. It is not at all clear that the CIT appeal has examined the sources of fund of the assessee company properly. There is nothing on record to rule out that the amount of share premium granted to the company having a very poor financial record was not out of circuitous route of rotation of share capital with premium. It is also not the case that the CIT appeals had himself examined the issue that assessing officer is doubting the very identity of the company when there was no service of notice u/s.133(6) at the given address. There is no detail as to what was the authorized capital. Whether the assessee company was authorized to raise the said amount of share capital. In this view of the matter since the assessing officer has not been provided adequate opportunity to go through the additional evidences, the examination of the ld. CIT(A) is wholly inadequate. Accordingly, in the interest of justice, we remit the issue to the file of assessing officer. Assessing officer is directed to examine the veracity of the additional documents being submitted by the assessee before the learned CIT appeals. AO shall also keep our observations hereinabove in mind. The assessing officer shall also examine as to how the share premium account of the assessee in this regard has been dealt with. As the Hon'ble Supreme Court in the case of Bharat Fire General Insurance Co. vs. CI T 1964 (4) TMI 44 - SUPREME COURT has observed that but for section 78 of the Companies Income Tax Act, 1961 share premium was profits available. The Hon'ble Apex Court in CIT vs. Allahabad Bank Ltd. 1969 (2) TMI 5 - SUPREME COURT has held that after Companies Income Tax Act, 1961, 1956 share premium cannot be used for purpose other than 78(2). As regards the various propositions and the case laws canvassed by the learned counsel of the assessee, the same shall be applicable after the factual verification of the documents claimed to have been submitted before the learned CIT appeals. The assessing officer shall consider the same after giving proper opportunity to the assessee of being heard. Appeal by the revenue stands allowed for statistical purposes.
Issues Involved:
1. Admission of fresh evidence by the CIT(A) in violation of Rule 46A of the Income Tax Act, 1961. 2. Adequacy of opportunity granted to the Assessing Officer (A.O.) by the CIT(A). 3. Deletion of the addition of ?3,75,00,000/- made under Section 68 of the Income Tax Act, 1961. 4. Relevance of other subscribers being found genuine by the A.O. to the genuineness of subscription of shares by M/s. KMC Construction Ltd. 5. Request to set aside the order of the CIT(A) and restore the order of the A.O. Issue-wise Detailed Analysis: 1. Admission of Fresh Evidence by the CIT(A) in Violation of Rule 46A: The Revenue contended that the CIT(A) erred in admitting fresh evidence without adhering to Rule 46A of the Income Tax Rules, 1962. The CIT(A) admitted additional evidence, including bank statements, annual reports, and confirmations from KMC Construction Ltd., but failed to provide adequate opportunity for the A.O. to verify and comment on these documents. The Tribunal noted that the CIT(A) also relied on a share subscription agreement that was not remanded to the A.O., thereby violating Rule 46A. 2. Adequacy of Opportunity Granted to the A.O. by the CIT(A): The CIT(A) forwarded the additional evidence to the A.O. for verification but did not receive a report on the merits. The Tribunal observed that the A.O. was not given adequate time to examine the additional evidence. The Tribunal emphasized that the principles of natural justice require both parties to be given a fair opportunity, which was not adhered to in this case. 3. Deletion of the Addition of ?3,75,00,000/- Made Under Section 68: The A.O. added ?3,75,00,000/- to the income of the assessee under Section 68, citing unexplained cash credits. The CIT(A) deleted this addition, noting that the assessee provided confirmations, audited accounts, and bank statements proving the identity, creditworthiness, and genuineness of the transaction with KMC Construction Ltd. However, the Tribunal found that the CIT(A) did not adequately examine the sources of funds and financial details of the investor company. The Tribunal remitted the issue back to the A.O. for a thorough verification of the additional documents and a detailed examination of the share premium account. 4. Relevance of Other Subscribers Being Found Genuine by the A.O.: The CIT(A) opined that the A.O.'s acceptance of share applications from other companies for smaller amounts weakened the case against the ?3.75 crores received from KMC Construction Ltd. The Tribunal disagreed, stating that the CIT(A) failed to provide a detailed examination of the financials and the identity of KMC Construction Ltd. The Tribunal emphasized the need for a comprehensive verification of the genuineness of the transaction. 5. Request to Set Aside the Order of the CIT(A) and Restore the Order of the A.O.: The Tribunal found merit in the Revenue's appeal, noting the procedural lapses and inadequate examination by the CIT(A). The Tribunal allowed the appeal for statistical purposes, remitting the matter back to the A.O. for a detailed verification of the additional evidence and a thorough examination of the share premium account in accordance with the principles of natural justice. Conclusion: The Tribunal concluded that the CIT(A) erred in admitting additional evidence without providing adequate opportunity to the A.O. and failed to conduct a thorough examination of the financials and identity of the investor. The case was remitted back to the A.O. for a detailed verification of the additional documents and a comprehensive assessment of the share premium account. The appeal by the Revenue was allowed for statistical purposes.
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