2023 (3) TMI 904 - AT - Income Tax

Unexplained cash credits u/s. 68 - Discharge of onus - CIT-A deleted addition - HELD THAT - We concur with the view taken by the CIT(Appeals) that now when the assessee had duly discharged the onus that was cast upon it as regards proving the nature and source of the credit appearing in its books of account, i.e. share application money that was received from the investor company by placing on record supporting documentary evidences, viz. name and address, PAN details, certificate of incorporation, memorandum of association, article of association, audited financial statement, income-tax return, bank statement (out of which share application money was paid), share application form and details of receipt of amount through banking channels, therefore, the A.O could not have drawn adverse inferences as regards the authenticity of the said transaction without dislodging the aforesaid claim of the assessee on the basis of any such material which would have irrefutably proved to the contrary. As regards the observation of the A.O that during the course of search proceeding the statutory records of the assessee company, viz. minutes of meeting register, shareholders register, counter foils of issued share certificates etc. were not found at the registered office of the assessee company, we find that the CIT(Appeal) had vacated the same on the ground that a perusal of the statements recorded u/s.132(4) of the Act, nowhere revealed that any official of the search team in the course of the said proceedings had visited the registered office of the assessee company. Nothing is discernible from the records before us which would reveal that the observations of the CIT(Appeals) are either perverse or contrary to the facts available on record. Also, the ld. D.R during the course of hearing of the appeal had failed to rebut the aforesaid observation of the CIT(Appeals). No infirmity in the view taken by the CIT(Appeals) as regards the genuineness and authenticity of the assessee s claim of receipt of share application money, therefore, uphold his order to the said extent. Thus, the Grounds of appeal No.1 2 raised by the revenue are dismissed in terms of our aforesaid observations. Suppressed yield of sponge iron in the hands of the assessee company - HELD THAT - Not only both the lower authorities had failed to take cognizance of the aforesaid serious infirmity and had allowed it to perpetuate as such, but what is incomprehensible and rather strange is that even in the course of the proceedings before us neither the assessee nor DR had pointed out the same to us. Be that as it may, as the grievance of the revenue is based on misconceived facts which clearly militates against the facts discernible from the assessment order, which reveals that the yield of sponge iron of the assessee company during the year under consideration i.e A.Y 2010-11 was 60.02% i.e better than the yardstick of 60% that was adopted by the A.O. therefore, the very basis of the grievance of the revenue does not survive. Decided against revenue.

Summary

Issues Involved:

1. Deletion of additions made on account of share application/capital received as unexplained cash credits under Section 68 of the Income Tax Act, 1961.
2. Alleged suppression of production based on lower yield declared by the assessee and corresponding unrecorded sale thereof.
3. Allegation of the CIT(A) passing the order in a perverse manner without giving reasonable opportunity to the AO.

Detailed Analysis:

Issue 1: Deletion of Additions on Account of Share Application/Capital Received as Unexplained Cash Credits under Section 68 of the Act

The department challenged the deletion of an addition of Rs. 9.40 crore made by the AO, which was claimed by the assessee as share application money received from M/s. Calidora Traders Pvt. Ltd. The AO had initially rejected the assessee's claim, citing the absence of statutory records during the search proceedings and the lack of creditworthiness of the investor. However, the CIT(A) found that there was no evidence that the search team had visited the registered office of the assessee company or queried about the statutory records. Additionally, the CIT(A) noted that the assessee had provided substantial documentary evidence, including the assessment order of M/s. Calidora Traders Pvt. Ltd., which confirmed the genuineness of the share capital and reserves of the investor company. The CIT(A) concluded that the assessee had adequately discharged its onus to prove the identity, creditworthiness, and genuineness of the transaction, leading to the deletion of the addition.

Issue 2: Alleged Suppression of Production Based on Lower Yield Declared by the Assessee and Corresponding Unrecorded Sale Thereof

The AO had made an addition of Rs. 1,84,88,252/- based on the assumption that the assessee had suppressed its yield of sponge iron. The AO adopted an average yield of 60% as a yardstick, which was contested by the assessee. The CIT(A) found that the AO had no basis for adopting the 60% yield and observed that the yield declared by similarly placed assessees in the industry was not uniform. Moreover, the CIT(A) noted that the yield of the assessee company was better than the average yield in the iron ore industry. Additionally, it was found that the AO had mistakenly included an addition for the preceding year (AY 2009-10) while assessing the income for the year under consideration (AY 2010-11). The CIT(A) vacated the addition, and the tribunal upheld this decision, noting that the AO's basis for the addition was misconceived.

Issue 3: Allegation of the CIT(A) Passing the Order in a Perverse Manner Without Giving Reasonable Opportunity to the AO

The department alleged that the CIT(A) had acted in a perverse manner and passed the order in haste without giving the AO a reasonable opportunity to present his submissions. The tribunal found no merit in this claim, as the CIT(A) had called for a remand report from the AO and had based his decision on substantial documentary evidence provided by the assessee.

Conclusion:

The tribunal upheld the CIT(A)'s decision to delete the additions made by the AO on account of share application money and alleged suppression of production. The tribunal found that the CIT(A) had correctly assessed the evidence and provided a reasoned order. Consequently, the appeal filed by the revenue was dismissed, and the cross-objection filed by the assessee was rendered academic and also dismissed.