2023 (10) TMI 692 - AT - Income Tax

Addition u/s 68 - unexplained share capital received by the assessee - subscriber companies have not come personally in response to the summons issued by the AO - as per AO identity and creditworthiness of the share applicants and genuineness of the transactions were not proved - HELD THAT - As on perusal of the Assessment order would reveal that the AO has duly acknowledged the receipt of the relevant documents/evidences not only from the assessee, but also from the subscriber companies. However, he insisted for personal appearance of the directors of the subscriber companies without even going through and discussing about the discrepancies, if any, in the documents furnished by the assessee as well as by the share subscriber companies to prove the identity and creditworthiness of the subscribers and the genuineness of the transaction. AO has not pointed out in the Assessment Order as to what further enquiries he wanted to make from the directors of the subscribers to insist for their personal presence. AO, in our view, could have taken an adverse inference, only if, he would have pointed out the discrepancies or insufficiency in the evidences and details received in his office and pointed out as to on what account further investigation was needed by way of recording of statement of the directors of the subscriber companies. Even if the directors of the subscriber companies have not come personally in response to the summons issued by the AO, in our view, adverse inference cannot be taken against the assessee solely on this ground as it is not under control of the assessee to compel the personal presence of the directors of the shareholders before the AO. AO in this case has not made any independent enquiry to verify the genuineness of the transactions. The assessee having furnished all the details and documents before the AO and AO has not pointed out any discrepancy or insufficiency in the said evidences and details furnished by the assessee before him. As observed above, the assessee having discharged initial burden upon him to furnish the evidences to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction, the burden shifted upon the AO to examine the evidences furnished and even made independent inquiries and thereafter to state that on what account he was not satisfied with the details and evidences furnished by the assessee and confronting with the same to the assessee. In view of this, even applying the ratio laid down by the Hon ble Supreme Court in the case of PCIT vs. NRA Iron and Steel Pvt. Ltd 2019 (3) TMI 323 - SUPREME COURT impugned additions are not warranted in this case. No justification on the part of the lower authorities in making the impugned additions - Assessee appeal allowed.

Issues Involved:
1. Legality and arbitrariness of the CIT(A)'s order.
2. Non-speaking nature of the CIT(A)'s order.
3. Compliance with assessment notices.
4. Treatment of share capital and share premium as unexplained cash credit.
5. Application of the Rajmandir Estates Pvt. Ltd. judgment.
6. Examination of assessment records and evidences.
7. Consideration of share application money as unexplained cash credit.

Summary:

1. Legality and Arbitrariness of the CIT(A)'s Order:
The assessee challenged the order of the CIT(A) as arbitrary, illegal, and bad in law. The Tribunal found that the CIT(A) did not provide a speaking order and failed to examine the assessment records and relevant materials, thus confirming the order of the Assessing Officer (AO) without proper justification.

2. Non-Speaking Nature of the CIT(A)'s Order:
The Tribunal noted that the CIT(A) did not discuss the material facts of the case or point out any defects in the evidences provided by the assessee. The order was deemed non-speaking and unsustainable as per law.

3. Compliance with Assessment Notices:
The AO issued notices under Section 133(6) to verify the identity and creditworthiness of the shareholders. Some notices were returned unserved, and summons under Section 131 were not complied with. The Tribunal found that the assessee had provided sufficient evidence to prove the identity and creditworthiness of the subscribers and the genuineness of the transactions.

4. Treatment of Share Capital and Share Premium as Unexplained Cash Credit:
The AO treated the share capital and share premium as unexplained cash credit due to non-compliance with summons. The Tribunal held that the AO failed to point out discrepancies in the evidences and that adverse inference could not be taken solely based on non-appearance of the directors of the subscriber companies.

5. Application of the Rajmandir Estates Pvt. Ltd. Judgment:
The CIT(A) relied on the judgment of the Calcutta High Court in Rajmandir Estates Pvt. Ltd., which was not applicable for the purpose of addition under Section 68. The Tribunal found this reliance misplaced.

6. Examination of Assessment Records and Evidences:
The Tribunal observed that the AO did not make independent inquiries to verify the genuineness of the transactions. The assessee had furnished all necessary details and documents, and the AO did not point out any insufficiency in these evidences.

7. Consideration of Share Application Money as Unexplained Cash Credit:
The Tribunal found that the AO and CIT(A) failed to justify the addition of share application money as unexplained cash credit. The assessee had provided adequate evidence, and the burden shifted to the AO to verify the same, which was not done.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the impugned additions made by the lower authorities. The order of the CIT(A) was deemed non-speaking and unsustainable.

Result:
The appeal of the assessee was allowed.

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