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2021 (7) TMI 583 - AT - Income TaxAddition u/s 68 - share application money received from 6 different companies unexplained - CIT-A has deleted the addition made on the details submitted by the assessee of the records of the registrar of Companies of the share applicant, permanent account number and income tax jurisdiction of the share applicant company, the bank statement as well as the acknowledgement of the latest income tax return - HELD THAT - CIT - A did not mention what further investigation the learned assessing officer could have carried out when neither the assessee could produce any of the directors, nor the director of the assessee company remained present before the AO. Further the respective summons issued twice by the learned assessing officer returned unserved and definition of Inspector also proved that no such company existed at that assessee given by the assessee. Assessee did not give any other address of the shareholders. The financial position of the share applicant was also shaky and lacked any credence. It was also unfair therefore the learned CIT A to note that just because the creditors/share applicants could not be found at the address given it would not give the revenue are right to invoke Section 68 without any additional material to support such a move. In fact the learned assessing officer has done what could have been done. CIT A was further stated by the fact that the money is received by cheque and transmitted through banking channels the genuineness of the transaction stands proved. We are sorry to state that all such transactions are only through banking channels. Merely because the transactions are carried out through banking channels the creditworthiness of the parties as well as the genuineness of the transaction does not prove at all. The learned CIT A further stated that offer of the sum to be taxed by the learned authorised representative who only appeared before the assessing officer could not be the reason for making the addition. He plainly overlooked the fact that the learned assessing officer has not accepted the surrendered made by the learned authorised representative but has made the addition solely on the basis of the material produced by the assessee and failure of the assessee to produce the directors of the shareholders before him not only once but on many occasions. Even the director of the assessee company was not produced. The learned CIT A did not utter a word in his whole order that what would be the reason for surrender of the sum by the assessee and forfeiture of the share application money immediately in the succeeding year. Therefore we completely agree with the argument of the learned departmental representative that the order of the learned CIT A does not have any legs to stand. None of the judicial precedents cited before the learned CIT A applies to the facts of the case. In view of this we reverse the order of the learned CIT A relating the addition made by the learned assessing officer u/s 68 of the income tax act and restore the order of the learned assessing officer. - Decided against assessee.
Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act for ?2,50,00,000/-. 2. Treatment of purchase of computers as revenue expenditure. 3. Validity of surrender made by the Authorized Representative (AR) during assessment proceedings. Issue-wise Detailed Analysis: 1. Deletion of Addition under Section 68 of the Income Tax Act: The Revenue challenged the deletion of an addition of ?2,50,00,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act. The AO had added this amount to the assessee's income, doubting the identity, creditworthiness, and genuineness of the share applicants. The assessee provided details such as the Registrar of Companies records, PAN, bank statements, and income tax returns of the share applicant companies to establish these factors. Despite this, the AO found the evidence insufficient and noted that the companies did not exist at the provided addresses, and the summons issued to these companies were returned undelivered. The AO also highlighted that the share application money was forfeited in the subsequent year, raising further suspicion. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, stating that the assessee had discharged its initial onus by providing necessary documents and that the AO failed to carry out further investigations. The CIT(A) held that the burden shifted to the AO to disprove the assessee's claims, which was not done adequately. However, the Tribunal reversed the CIT(A)'s decision, emphasizing that the AO had conducted thorough investigations, including issuing summons and deputing an Inspector to verify the companies' existence. The Tribunal noted that the AO's findings were consistent with the principles laid down by the Supreme Court in the case of NRA Iron & Steel Ltd. and the Delhi High Court in NDR Promoters (P.) Ltd., which required conclusive evidence of the share applicants' identity, creditworthiness, and transaction genuineness. The Tribunal concluded that the CIT(A) had erred in deleting the addition without adequately addressing the AO's findings and restored the AO's order, thereby allowing the Revenue's appeal on this ground. 2. Treatment of Purchase of Computers as Revenue Expenditure: The Revenue contended that the CIT(A) erred in treating the purchase of computers and parts amounting to ?1,85,592/- as revenue expenditure. The AO had classified this expenditure as capital in nature, arguing that the purchase of new computers should not be allowable as revenue expenditure. The CIT(A) had deleted this addition, but the Tribunal did not specifically address this issue in the detailed judgment provided. Therefore, it is presumed that the Tribunal's decision to allow the Revenue's appeal implicitly includes agreement with the AO's original classification of the expenditure as capital in nature. 3. Validity of Surrender by Authorized Representative: The Revenue also challenged the CIT(A)'s decision to delete the addition made by the AO based on the surrender of income by the assessee's Authorized Representative (AR) during the assessment proceedings. The AO had made the addition based on detailed inquiries and not solely on the AR's surrender. The CIT(A) held that a lawyer or AR must be specifically authorized to settle and compromise a claim, and merely on the basis of employment, they do not have the authority to bind their client to a compromise or settlement. The CIT(A) concluded that the addition could not be made based on the AR's surrender unless it was agreed upon by the company's director. The Tribunal, however, found that the AO had made the addition based on substantial evidence and multiple opportunities given to the assessee to produce the directors of the share applicant companies, which the assessee failed to do. The Tribunal agreed with the Revenue that the CIT(A) had overlooked the AO's detailed findings and the failure of the assessee to substantiate the genuineness of the transactions. Consequently, the Tribunal restored the AO's order, allowing the Revenue's appeal on this ground as well. Conclusion: The Tribunal allowed the appeal filed by the Revenue, reversing the CIT(A)'s order and restoring the AO's additions under Section 68 of the Income Tax Act. The Tribunal emphasized the need for conclusive evidence to establish the identity, creditworthiness, and genuineness of share applicants and upheld the AO's thorough investigation and findings.
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