2022 (4) TMI 1079 - AT - Income Tax

Unexplained share application money with share premium u/s 68 - CIT-A deleted the addition - HELD THAT - We find that the assessee has returned the unsecured loans outstanding to various parties who happened to be the directors of the assessee company or their close relatives and thereafter the money so repaid was brought back in the form of share application in the assessee company converting the same into the share capital and share premium. We note that the assessee has filed all the documents/evidences relating to these investors in the form of names, addresses, ITRs, PANs and confirmation etc. before the AO which were duly matching with the documents filed by these investors before the AO in response to notices issued to these parties by the AO u/s 133(6) of the Act. In our opinion, the order of Ld. CIT(A) has dealt with each and every aspect of the issue in great depth and thus passed a very speaking and reasoned order while deleting the addition. Addition on account of stocks as found by survey team during the course of survey - revenue has challenged the deletion of stock out of total addition made by the AO u/s 69 whereas the assessee has challenged the part confirmation of addition by the CIT(A) - HELD THAT - After hearing the rival contentions and perusing the facts on record including the reconciliation statement filed by the assessee reconciling the stock as taken by the survey team and as per the books of the assessee before the AO and the Ld. CIT(A), we note that there were several infirmities/mistakes committed by the survey team while doing stock taking physically. From the perusal of reconciliation statement , it is apparent that the assessee has explained the stock differences minutely. It shows that the survey team even has omitted the stock to the extent of ₹ 36,80,834.34 whole the calculating excess stocks by committing various mistakes such as double accounting of stocks, wrong application of rate and various other reasons. Non of the authorities below has pointed out as to how the stock reconciled by the assessee is not correct. We, therefore, are inclined to accept the assessee s contention that the difference in stock inventory is only to the tune of ₹ 3,81,063.09/-. Accordingly we modify the order of the Ld. CIT(A) on this issue and direct the AO to add ₹ 3,81,063.09 . Consequently, the ground no. 2 of the revenue is dismissed and the assessee s appeal is partly allowed.

Summary

Issues Involved:
1. Deletion of addition on account of unexplained share application money with share premium under Section 68 of the Income Tax Act, 1961.
2. Deletion/confirmation of addition on account of undervaluation of stock found during the survey under Section 69 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Share Application Money with Share Premium under Section 68:

The revenue challenged the deletion of an addition of ?2,16,34,400 made by the Assessing Officer (AO) on account of share application money with share premium under Section 68 of the Income Tax Act, 1961. During the assessment proceedings, the AO issued notices under Section 133(6) to eight parties, which were duly replied. The AO concluded that the assessee failed to prove the identity, creditworthiness of the investors, and genuineness of the transactions, treating the amount as unexplained cash credit. The AO observed that the assessee repaid money to these parties, which was then received back as share application money, indicating circuitous rotation of funds.

In the appellate proceedings, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, observing that the assessee provided sufficient evidence, including PANs, addresses, confirmations, and proofs of identity and creditworthiness. The CIT(A) noted that all investors responded to notices under Section 133(6) and provided the required details.

Upon hearing both parties, the Tribunal found that the assessee repaid unsecured loans to directors or their close relatives, who then reinvested the money as share application money. The Tribunal upheld the CIT(A)'s order, noting that the assessee provided all necessary documents and evidence, and the transactions were genuine. The Tribunal dismissed the revenue's ground on this issue.

2. Deletion/Confirmation of Addition on Account of Undervaluation of Stock Found During the Survey under Section 69:

The revenue challenged the deletion of ?23,85,981 out of a total addition of ?61,85,981 made by the AO under Section 69 for undervaluation of stock found during a survey. The assessee's cross-appeal challenged the part confirmation of the addition to the tune of ?38,00,000 by the CIT(A). During the survey, the team inventoried the stock at ?2,93,70,252, while the stock per the assessee's books was ?2,31,84,271, resulting in a discrepancy of ?61,85,981.

The assessee argued that the survey team made errors in stock-taking, including double entries, wrong quantities, and incorrect rates. The assessee provided a reconciliation statement, which the AO rejected, leading to the addition of ?61,85,981.

The CIT(A) partly allowed the appeal, noting that the survey team made mistakes due to the short time for stock-taking. The CIT(A) observed that the books were not up-to-date, and there were instances of double counting and wrong rates. The CIT(A) restricted the addition to ?38,00,000, considering the possibility of the assessee undervaluing stock to reduce tax liability.

The Tribunal, after reviewing the reconciliation statement and hearing both parties, noted significant errors by the survey team. The Tribunal accepted the assessee's contention that the actual stock discrepancy was only ?3,81,063.09 and modified the CIT(A)'s order, directing the AO to add only ?3,81,063.09. Consequently, the Tribunal dismissed the revenue's ground and partly allowed the assessee's appeal.

Conclusion:

The appeal of the revenue was dismissed, and the appeal of the assessee was partly allowed. The Tribunal upheld the CIT(A)'s deletion of the addition on account of unexplained share application money and modified the addition on account of stock discrepancy to ?3,81,063.09. The order was pronounced in the open court on 21st April, 2022.