2021 (3) TMI 875 - AT - Income Tax

Addition u/s 68 - AO doubted the credit worthiness of the above companies and asked the assessee to substantiate source of source of the funds - assessee submitted that it has already submitted the bank statements and income-tax return copies and argued that the entire amount was received through banking channels - admission of additional evidence by CIT-A in deleting the addition - HELD THAT - In the instant case, the assessee has filed the bank statement before the CIT(A) with a request to admit the same as an additional evidence giving reasons for non-submission of the same before the AO and since the ld. CIT(A) has called for a remand report from the AO before deleting the addition, therefore, in our opinion, the order of the CIT(A) deleting the addition in the instant case does not call for any interference. It is not a case where the ld. CIT(A) has not given an opportunity to the AO to rebut the submissions made before him. In this view of the matter and in view of the detailed discussion made by the ld. CIT(A) while deleting the addition on account of share application money and unsecured loan in respect of different investors as mentioned earlier, the same, in our opinion, does not call for any interference and, accordingly, the same is upheld. The grounds raised by the Revenue are accordingly dismissed.

Issues Involved:
1. Addition under Section 68 of the Income Tax Act regarding share capital and share premium.
2. Addition under Section 68 of the Income Tax Act regarding unsecured loans.
3. Admissibility of additional evidence under Rule 46A of the Income Tax Rules, 1962.

Issue-wise Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act regarding share capital and share premium:

The Assessing Officer (AO) made additions under Section 68 of the Income Tax Act, 1961, for the assessment year 2011-12, concerning share capital and share premium received by the assessee from various entities, including Arun Gupta, ARG Udyog Pvt. Ltd., Shiroki Corporation, ARG Auto Components Pvt. Ltd., and ARG Autosystem Ltd. The AO questioned the identity, creditworthiness, and genuineness of the transactions, emphasizing that the assessee must prove not only the source but also the source of the source. The AO noted discrepancies, such as the issuance of shares at a premium of ?115 per share against the Net Asset Value (NAV) of ?52.50, and the low returned incomes of the investors.

The CIT(A) deleted the additions for Arun Gupta, ARG Udyog Pvt. Ltd., and Shiroki Corporation, while sustaining the addition for ARG Auto Components Pvt. Ltd. The CIT(A) found that the assessee had provided sufficient evidence, including confirmations, bank statements, income tax returns, and balance sheets, to substantiate the identity and creditworthiness of the investors and the genuineness of the transactions. The CIT(A) also noted that the share premium received from Shiroki Corporation was approved by the RBI as Foreign Direct Investment (FDI).

2. Addition under Section 68 of the Income Tax Act regarding unsecured loans:

The AO also added amounts received as unsecured loans from the same entities under Section 68, questioning the creditworthiness and genuineness of these loans. The AO observed that the bank statements showed a pattern where each debit entry was preceded by an equivalent credit entry, raising doubts about the transactions.

The CIT(A) deleted the additions for Arun Gupta, ARG Udyog Pvt. Ltd., and ARG Autosystem Ltd., while sustaining the addition for ARG Auto Components Pvt. Ltd. The CIT(A) found that the assessee had provided sufficient evidence to substantiate the creditworthiness of the lenders and the genuineness of the transactions. The CIT(A) also noted that some amounts were double-added by the AO, which was corrected in the appellate order.

3. Admissibility of additional evidence under Rule 46A of the Income Tax Rules, 1962:

The AO objected to the admission of additional evidence by the CIT(A), arguing that it violated Rule 46A of the Income Tax Rules, 1962. The CIT(A) admitted additional evidence, including bank statements and other documents, which were not produced before the AO during the assessment proceedings. The CIT(A) forwarded these documents to the AO for comments and considered the remand report before making a decision.

The Tribunal found that the CIT(A) had followed due process by forwarding the additional evidence to the AO and considering the remand report. The Tribunal upheld the CIT(A)'s decision to admit the additional evidence and found no violation of Rule 46A.

Conclusion:

The Tribunal upheld the CIT(A)'s order, deleting the additions made by the AO under Section 68 for share capital, share premium, and unsecured loans, except for the addition sustained for ARG Auto Components Pvt. Ltd. The Tribunal found that the assessee had provided sufficient evidence to substantiate the identity, creditworthiness, and genuineness of the transactions. The Tribunal also found that the CIT(A) had followed due process in admitting additional evidence under Rule 46A. The appeal filed by the Revenue was dismissed.

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