2022 (1) TMI 784 - AT - Income Tax

Addition u/s 68 - assessee has received share application money as unexplained - HELD THAT - AO has demonstrated that all the capital introduced in the capital account of share applicants are of non-verifiable nature; credit-worthiness of Shri Sanjay Gupta is very much doubtful; most of the amounts were from unknown sources. AO has rightly assumed that the transaction is not genuine rather rooted through unsecured loans etc. whose confirmation could not be filed. We find that though the assessee had provided identity of the giver of the funds, but onus to prove creditworthiness and genuineness of transaction beyond doubt have not been discharged by the assessee. Law on this issue on this point is clear. It is necessary for the assessee to prove prima facie, three aspects of the transaction which generated funds in the form of share application money. Section 68 provides three aspects to prove the case of cash credit such as proof of the identity of this creditor, the capacity of such creditor to advance the money and, genuineness of the transaction, and if these aspects are proved by the assessee, then burden shifts to the Department to prove otherwise. In the instant case, assessee has only established identity of the creditor, credit-worthiness and genuineness of the transaction with the assessee have come under serious cloud, and gave rise to reasonable belief in the mind of the AO that the assessee has indulged in a dubious transaction to launder its undisclosed income. Therefore, in our view, it is a fit case where provisions of section 68 of the Act should be invoked, which the ld.AO has rightly done so - No infirmity in the impugned order of the AO, more so, in view of the reasoning given in the remand report submitted by the assessee before the ld.CIT(A). Accordingly, action of the ld.AO in invoking provisions of section 68 is upheld, and the addition deleted by the ld.CIT(A) is set aside, and order of the AO on this issue restored. Accordingly, this ground of Revenue is allowed. Disallowance of sundry creditors - CIT(A) has restricted the impugned addition on the basis of the remand report filed by the AO and also based confirmations and other details filed during the remand proceedings as well as before the appellate proceedings - HELD THAT - We find that the ld.CIT(A) has examined this issue in detail, such as details submitted by the assessee and remand report by the AO, and after giving well reasoned findings restricted the impugned addition. Therefore no interference from our side is called for on this issue, which we uphold, and reject the ground of appeal of the Revenue.

Summary

Issues Involved:

1. Deletion of addition under section 68 of the Income Tax Act, 1961.
2. Restriction of addition on account of disallowance of sundry creditors.

Issue-wise Detailed Analysis:

1. Deletion of addition under section 68 of the Income Tax Act, 1961:

The Revenue contended that the CIT(A) erred in deleting the addition of ?3,85,44,666/- made by the AO under section 68 of the Income Tax Act, 1961. The AO discovered that the assessee received share application money from Shri Sanjay Gupta, Director of the assessee-company, but failed to provide satisfactory evidence to prove the genuineness, creditworthiness, and identity of the person. Consequently, the AO treated the share application money as unexplained cash credit and made an addition under section 68.

The CIT(A) deleted the addition, reasoning that the share application money was recorded in Shri Sanjay Gupta's balance sheet, who was regularly assessed to tax, thus discharging the onus cast on the assessee. The Revenue argued that the CIT(A) failed to consider the irregularities in Shri Sanjay Gupta's accounts, such as his low returned income and high unsecured loans, which cast doubt on his creditworthiness.

The Tribunal noted that while the identity of the creditor was established, the assessee failed to prove the genuineness and creditworthiness of the transaction. The AO's remand report highlighted dubious patterns in the bank transactions, suggesting that the funds were not genuinely available with Shri Sanjay Gupta. The Tribunal upheld the AO's decision, stating that the assessee did not discharge the burden of proving the creditworthiness and genuineness of the transactions. Therefore, the addition under section 68 was justified, and the CIT(A)'s deletion was set aside.

2. Restriction of addition on account of disallowance of sundry creditors:

The Revenue contended that the CIT(A) erred in restricting the addition to ?23,73,122/- out of the total addition of ?3,48,78,284/- made by the AO on account of disallowance of sundry creditors. The AO added the entire amount of sundry creditors to the assessee's income due to the failure to submit party-wise details and confirmations.

The CIT(A) called for a remand report and found that the assessee had provided confirmations and reconciled amounts for sundry creditors totaling ?3,25,05,162/-. The CIT(A) restricted the addition to ?23,73,122/- for creditors from whom no confirmations were received, such as Ajay Gupta, Goyal Power System, and M. Chandulal & Associates.

The Tribunal reviewed the CIT(A)'s findings and the remand report, noting that the CIT(A) had examined the issue in detail and provided well-reasoned findings. The Tribunal upheld the CIT(A)'s decision to restrict the addition, agreeing that the genuineness of the sundry creditors amounting to ?3,25,05,162/- was established, and the remaining amount of ?23,73,122/- was rightly disallowed.

Conclusion:

The Tribunal partly allowed the Revenue's appeal by upholding the AO's addition under section 68 and setting aside the CIT(A)'s deletion. However, it upheld the CIT(A)'s restriction of the addition on account of sundry creditors, rejecting the Revenue's ground on this issue. The order was pronounced on 1st December 2021 at Ahmedabad.