2022 (11) TMI 187 - AT - Income Tax

Undisclosed income - amounts received by the assessee through third parties by way of circular transactions - CIT- A deleted addition - HELD THAT - Mainly the assessee has to justify the amount credited in the books of accounts of the assessee itself with the identity, creditworthiness and genuineness of the world transaction. Here the assessee has diverted the attention of CIT A producing the directors of 2 related parties. In fact the AO/CIT A should have examined the parties were given credit in the books of the assessee/credited in the bank account of the assessee. This exercise is missing. As relevant that there is a an embezzlement in the transactions of related parties. Assessee has nothing to do with that, it has the prime responsibility of proving the amount credited in the bank account of the assessee. Therefore, CIT A has deleted the addition on the basis of the relevant material. There is no independent evidence available with the learned CIT A to delete the addition. He has deleted the addition merely on the basis of statement of the directors of 2 related parties, statement of the partner of the assessee who is also director in one of the company which is involved in the world transaction as per the statement of the assessee. Thus, lack of independent evidence makes the order of the learned CIT A not sustainable. CIT A has also wrongly held that when the amount is deposited in the bank account with HDFC bank of the assessee the deeming provisions of Section 68 is not applicable to the said receipt as it is credited in the bank account of the appellant. CIT A has ignored the fact that the amount which is credited in the bank account of the assessee is also credited in the books of accounts of the assessee and therefore the provisions of Section 68 are definitely attracted. We set aside whole issue back to the file of the ld. CIT (A) with a direction to pass decide whether the additional evidences submitted by the assessee were admitted or not giving reasons for his order. Thereafter he may decide the issue on merits of the case considering our above finding. Appeal of AO is allowed for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition on account of undisclosed income.
2. Admissibility and consideration of additional evidence.
3. Application of Section 68 of the Income Tax Act.

Detailed Analysis:

1. Deletion of Addition on Account of Undisclosed Income:
The primary issue revolves around whether the Commissioner of Income Tax (Appeals) [CIT(A)] erred in deleting the addition of Rs. 58,12,01,658 on account of undisclosed income. The Assessing Officer (AO) argued that the amounts received by the assessee through third parties were circular transactions and should be considered undisclosed income. The AO noted that the assessee received Rs. 58.30 crores in its bank account, which was not accounted for as sales. The AO concluded that the substantial amounts received from third parties were undisclosed income, as the assessee failed to provide documentary evidence to substantiate the transactions.

The CIT(A) considered the materials on record, including additional evidence and statements recorded under Section 131 of the Income Tax Act, and held that the nature and source of the credited amounts were explained and substantiated. The CIT(A) found that the amounts received were recoveries of advances given to two related parties, M/s. Medichem Lifesciences Pvt. Ltd. and M/s. Friends Trading, and were not business receipts of the assessee. Consequently, the CIT(A) deleted the addition except for an amount of Rs. 18,46,800, which remained unexplained.

2. Admissibility and Consideration of Additional Evidence:
The AO objected to the admission of additional evidence submitted by the assessee during the appellate proceedings, arguing that the assessee had ample opportunity to present this evidence during the assessment proceedings but failed to do so. The CIT(A) admitted the additional evidence, which included confirmations from the parties involved and statements recorded under oath. However, the Tribunal noted that the CIT(A) failed to make an order under Rule 46A of the Income Tax Rules, which is mandatory when admitting additional evidence. The Tribunal emphasized that the CIT(A) should have provided reasons for admitting the additional evidence, especially when the AO had objected to it.

3. Application of Section 68 of the Income Tax Act:
The Tribunal highlighted that the CIT(A) incorrectly held that the deeming provisions of Section 68 were not applicable to the amounts credited in the bank account of the assessee. The Tribunal pointed out that the amounts credited in the bank account were also credited in the books of accounts of the assessee, thereby attracting the provisions of Section 68. The Tribunal emphasized that the assessee had the primary responsibility to prove the identity, creditworthiness, and genuineness of the transactions, which was not adequately addressed by the CIT(A).

Conclusion:
The Tribunal set aside the order of the CIT(A) and remanded the issue back to the CIT(A) for reconsideration. The CIT(A) was directed to decide on the admissibility of the additional evidence with proper reasoning and then re-evaluate the merits of the case. The Tribunal allowed the appeal of the AO for statistical purposes, emphasizing the need for a thorough examination of the evidence and proper application of legal provisions.