2024 (5) TMI 1237 - AT - Income Tax

Addition u/s 68 - unexplained credit - assessee has failed to provide satisfactory explanation towards nature and source of credits received - onus of proof - CIT(A) granted relief to the assessee -DR assailed the order of the CIT(A) in not making any independent enquiry either himself or through AO and proceeded with the adjudication in haste without seeking further remand report necessary for determining the issue towards genuineness of transaction and creditworthiness of the parties. HELD THAT - It is indeed the duty of the AO as well as that of CIT(A) to make necessary enquiry. It is indeed the sacrosanct obligation of the first appellate authority to have ensured that the effective enquiry was carried out particularly in the face of the objections of the AO challenging the bona fides of the large money received in the form of share application. CIT(A), in our considered view, could not have summarily accepted the submissions of the assessee and outrightly discard the case of the AO without making requisite enquiry. AO has categorically observed that creditworthiness of the share applicant was not proved at all. Despite such observations, the CIT(A) has merely found fault with the order of the AO without looking into the vital aspects such as the circumstances for granting heavy amounts by the applicants to a company having meagre capital and subdued income, allotment thereof in the subsequent years if any, capacity of the applicants and circumstances for making investment. We therefore find apparent fallacy in the action of the CIT(A). The order of the CIT(A) on the issue involved therefore clearly warrants set aside and proper re-examination thereof is called for. Without reiterating the points raised in the preceeding paras, we set aside the order of the CIT(A) on the subject matter of appeal and restore the matter back to the file of the CIT(A) for de novo adjudication in accordance with law after making or causing proper enquiry as may be considered expedient. Section 251 of the Act defines the power of the CIT(A) in widest possible terms including power to enhance the assessment. The powers conferred upon the FAA by the Income Tax Act are much wider than the powers of an ordinary court of appeal. FAA is not an ordinary court of law considering that only one party to the original decision taken is entitled to appeal. It is on account of this peculiar position that statute has conferred wide powers to the First Appellate Authority. Once the assessment comes before the CIT(A), his jurisdiction is not confined to only those points which have been raised by the AO. CIT(A) can examine every process in connection to an issue. Legislature has thus conferred extraordinary power in CIT(A). Alongside the appellate powers conferred, the scope of power of CIT(A) being co-terminus with that of AO, he can do what the AO can do and also direct him to do what he has failed to do as held in CIT vs. Nirbheram Daluram 1997 (3) TMI 2 - SUPREME COURT CIT(A) thus ought to have exercised his power judicially and ought to have made requisite inquiries on the pertinent points. Transaction through banking channel alone is not sufficient to establish creditworthiness as observed in CIT Vs. Jansampark Advertising and Marketing. Pvt. Ltd. 2015 (3) TMI 410 - DELHI HIGH COURT CIT(A) is thus under solemn duty to set the facts right and in perspective to determine the correct position of taxability on a given issue. Appeal of the Revenue is allowed for statistical purposes.

Summary

Issues Involved:

1. Jurisdiction of AO in limited scrutiny.
2. Merits of addition u/s 68 for unexplained share application money.
3. Opportunity for assessee to present evidence and adherence to natural justice.
4. CIT(A)'s handling of additional evidence and remand report.
5. Genuineness and creditworthiness of share applicants.

Summary:

1. Jurisdiction of AO in Limited Scrutiny:

The assessee challenged the AO's jurisdiction, claiming the AO exceeded the mandate of limited scrutiny. The CIT(A) observed that the addition made for unexplained share application money was within the scope of limited scrutiny. The CIT(A) dismissed the assessee's argument, stating that the AO's actions were justified and within the limited scrutiny mandate.

2. Merits of Addition u/s 68 for Unexplained Share Application Money:

The AO treated Rs. 12,61,40,820/- as unexplained credit u/s 68, due to the assessee's failure to provide satisfactory explanations regarding the identity, creditworthiness, and genuineness of the transactions. The CIT(A) found merit in the assessee's case, noting that the share applicants were existing shareholders, and the transactions were through banking channels with proper documentation, including PAN and FIRC certificates. The CIT(A) reversed the AO's additions, concluding that the assessee had established the identity, creditworthiness, and genuineness of the transactions.

3. Opportunity for Assessee to Present Evidence and Adherence to Natural Justice:

The assessee contended that reasonable opportunity was not provided to present the non-resident shareholders, as the AO issued a notice on 29.12.2017 for production on 30.12.2017, while the assessment order was already passed on 29.12.2017. The CIT(A) noted that this denied the assessee a fair opportunity and violated the principles of natural justice.

4. CIT(A)'s Handling of Additional Evidence and Remand Report:

The CIT(A) admitted additional evidence under Rule 46A, including PAN, bank statements, and confirmation letters. The AO's remand report objected to the admission of additional evidence, citing repeated non-compliance by the assessee. However, the CIT(A) found the additional evidence credible and supportive of the assessee's claims. The Tribunal noted that the AO did not seriously comment on the evidence and reiterated the onus on the assessee to prove identity, genuineness, and creditworthiness.

5. Genuineness and Creditworthiness of Share Applicants:

The Tribunal observed that the financial statements of the assessee were lopsided, with large share application money not resulting in share allotment or return of money. The CIT(A) accepted the assessee's version without meaningful inquiry into the vital aspects. The Tribunal found the CIT(A)'s approach flawed and lacking proper inquiry, especially regarding the capacity and motives of the share applicants. The Tribunal set aside the CIT(A)'s order and remanded the matter for de novo adjudication, emphasizing the need for proper inquiry and adherence to natural justice.

Conclusion:

The Tribunal allowed the Revenue's appeal for statistical purposes, directing the CIT(A) to re-examine the issue with proper inquiry and adherence to legal principles, ensuring a fair opportunity for the assessee to present evidence.