2022 (11) TMI 246 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - assessee has received money under the head share capital as well as share premium - CIT(A) partly allowed the appeal of the assessee on this issue by directing the AO to delete the addition in respect of investors from whom the money was received by cheques by giving detailed findings that the assessee has proved the identity, creditworthiness of the investors and also the genuineness of the transactions while confirming the addition where the money was made in cash from 128 investors on the ground that the said transactions were not genuine as they were made in cash - HELD THAT - AO has harped on the sole basis of investments being in cash which cannot be a sole ground for making the additions particularly when the investors appeared personally before the AO in response to summons issued u/s 131 and admitted and confirmed the investments in the shares of the assessee company. As perused the said remand report dated 14.10.2019 and find that nowhere in the remand report any adverse inference was drawn the AO of any kind whatsoever. AO even stated in the remand report that investors were either engaged in small scale proprietory business of trading in paddy or were engaged in agricultural operations. AO also noted that the cash deposited into the bank accounts was out of was out of normal business operation and all have filed their ITRs , balance Sheets, personal P L A/Cs and bank statements who invested in the assesse company by cheques. As regards those investors who invested in the assessee s shares in cash in small amounts have filed their voter I.D cards , balance sheets and confirmed the transactions by personally appearing before the AO in response to summons issued u/s131 of the Act. As also stated by the AO that there is no bar on buying shares in cash and any person can invest this much amount. Under these facts and circumstances, we are not in concurrence with the conclusion of the Ld. CIT(A) that the assessee has failed to discharge the onus of proving the creditworthiness of all the creditors and genuineness of the transactions. Accordingly we set aside the order of Ld. CIT(A) on this issue and direct the AO to delete the addition - Accordingly ground raised by the assessee are allowed. Addition in respect of disclosure made in the survey operation in respect of excess stocks found - HELD THAT - We have examined the records of stocks as placed before us and find that the stocks disclosed during survey of Rs. 50 lacs were duly incorporated in the books of accounts of the assessee as is apparent from paper book. Even AO has accepted the fact that assessee has shown the stocks of Rs. 50 lacs in the books of accounts and allowed the credit thereof. Considering these facts , we set aside the order of Ld. CIT(A) on this issue and direct the AO to delete the addition of Rs. 50 lacs. Accordingly ground no. 4 is allowed. TDS u/s 194C - Addition u/s 40a(ia) - assessee has paid documentation charges consisting of freight and transportation charges on which tax was not deducted at source as required - HELD THAT - The crux of the ratio laid down in the said decision is that where the assessee has made any payment and the payee has duly disclosed the said receipt in M/S. HINDUSTAN COCA COLA BEVERAGE PVT. LTD 2007 (8) TMI 12 - SUPREME COURT has paid taxes thereon, no disallowance u/s 40a(ia) of the Act to be made. therefore the Ld. CIT(A) has not interpreted the decision correctly. Since the payment made by the assessee to Satyam Services has duly been shown in the return of income of the said recipient and due tax was also paid which is not in dispute at all. Therefore respectfully following the ratio as laid down in the Apex Court decision as referred to above , we are inclined to set aside the order of Ld. CIT(A) on this issue and direct the AO to delete the addition. Appeal of the assessee is allowed.

Summary

Issues:
1. Treatment of addition of Rs. 72,96,000 under section 68 of the Act.
2. Confirmation of addition of Rs. 50 Lakh in respect of excess stocks found during survey operation.
3. Disallowance of Rs. 6,24,709 under section 40a(ia) read with Section 194 of the Act.

Issue 1: Addition under Section 68 of the Act
The assessee appealed against the part confirmation of addition of Rs. 72,96,000 out of total addition of Rs. 1,63,24,000 made by the AO under section 68 of the Act. The AO doubted the genuineness of share capital received from certain investors and treated Rs. 75,24,000 as unexplained cash credit. The CIT(A) partly allowed the appeal, directing the AO to delete the addition in respect of investors who paid by cheques but confirmed the addition for cash payments. The ITAT Kolkata noted that the investors were from rural areas without banking facilities, had agricultural backgrounds, and personally appeared before the AO confirming their investments. The ITAT held that the AO's sole basis of cash investments was insufficient, especially when investors cooperated and provided necessary documents. Consequently, the ITAT directed the AO to delete the addition of Rs. 72,96,000.

Issue 2: Addition of Rs. 50 Lakh in Excess Stocks
The appeal was against the confirmation of addition of Rs. 50 Lakh in respect of excess stocks found during a survey operation. The AO calculated the excess stocks after allowing credit for the disclosed amount of Rs. 50 Lakh. The CIT(A) upheld the addition, stating that the assessee failed to prove the disclosure in the return of income and profit and loss account. However, the ITAT observed that the disclosed stocks were duly incorporated in the books of accounts, as acknowledged by the AO. Therefore, the ITAT directed the AO to delete the addition of Rs. 50 Lakh.

Issue 3: Disallowance under Section 40a(ia)
The dispute involved the disallowance of Rs. 6,24,709 for non-deduction of tax at source on documentation charges paid to Satyam Services. The CIT(A) confirmed the disallowance, considering it a default under Section 194C. The ITAT disagreed, citing the decision in Hindustan Coca Cola Beverages Pvt. Ltd. vs. CIT, stating that if the recipient disclosed the income and paid taxes, no disallowance should be made. As the payment was disclosed by Satyam Services and taxes were paid, the ITAT directed the AO to delete the disallowance.

In conclusion, the ITAT Kolkata allowed the appeal of the assessee on all three issues, directing the AO to delete the respective additions and disallowance.