2008 (1) TMI 431 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of Share Application Money as Unexplained Cash Credit under Section 68 of the Income-tax Act, 1961.
2. Charging of Interest under Sections 234B and 234C of the Income-tax Act, 1961.
3. Deletion of Disallowance of Share Capital by the Commissioner of Income-tax (Appeals).

Issue-wise Detailed Analysis:

1. Treatment of Share Application Money as Unexplained Cash Credit under Section 68 of the Income-tax Act, 1961:

The primary issue in the appeal was the treatment of share application money amounting to Rs. 1,79,50,000 as unexplained under Section 68 of the Income-tax Act, 1961. The assessee failed to substantiate its claim regarding the nature and source of the share application money. The Assessing Officer (AO) observed that despite providing various opportunities, the assessee did not prove the nature and source of the liability, leading to the conclusion that the liability remained unexplained. The Commissioner of Income-tax (Appeals) (CIT(A)) confirmed the addition of Rs. 1,79,50,000, citing that the onus under Section 68 to prove the genuineness of the transaction, the creditworthiness of the creditor, and the actual identity of the creditor had not been discharged by the assessee.

The Tribunal emphasized that the onus is on the assessee to prove the identity, creditworthiness, and genuineness of the transaction for cash credits appearing in its books. The Tribunal referred to the decisions in the cases of "Sofia Finance Ltd." and "Divine Leasing and Finance Ltd." to highlight the importance of the AO's role in investigating the legitimacy of the subscription. The Tribunal noted that the assessee had not cooperated with the AO by not providing necessary documents and information, thereby thwarting the AO's attempt to verify the creditworthiness and genuineness of the transactions.

2. Charging of Interest under Sections 234B and 234C of the Income-tax Act, 1961:

Ground No. 9 of the assessee's appeal related to the issue of charging interest under Sections 234B and 234C. The assessee's authorized representative conceded that the charging of interest under these sections is consequential in nature and would be reworked according to the appellate order passed by the Tribunal.

3. Deletion of Disallowance of Share Capital by the Commissioner of Income-tax (Appeals):

In the cross-objection, the Revenue challenged the deletion of the disallowance of Rs. 46,07,000 being share capital by the CIT(A). The CIT(A) had relied on the Supreme Court decision in "CIT v. Steller Investment Ltd." to delete the addition. The AO had initially added the share capital and share application money due to the assessee's failure to prove the identity and creditworthiness of the companies/parties involved. The CIT(A) allowed relief by confirming the addition of Rs. 1,79,50,000 and deleting Rs. 46,07,000, stating that no addition could be made for the share capital already allotted, as per the Supreme Court's decision.

Tribunal's Conclusion:

The Tribunal set aside the orders of the tax authorities below and restored the matter to the AO for re-examination. The Tribunal directed the AO to re-decide the issue afresh after considering the documents filed on record by the assessee. The assessee was instructed to cooperate with the AO by providing all necessary information, documents, and the presence of the director, Shri Sandeep Thapar, to facilitate the completion of the assessment. The Tribunal allowed the grounds of appeal taken by the assessee and the grounds in the cross-objection by the Revenue for statistical purposes. The order was pronounced in the open court on January 11, 2008.