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2024 (6) TMI 1355 - AT - Income TaxUnexplained cash credit u/s 68 - Bogus share capital and share premium received - onus to prove - HELD THAT - AO simply issued notice u/s 131 of the Act to the assessee requiring to appear personally along with all the Principal Officers, directors of all the investor companies and individual investors, as the case may be, to verify the transactions without going through the details, evidences furnished by the assessee which included the details of the share subscribers, their creditworthiness and also the books of account and bank statements etc. furnished by the assessee to prove the genuineness of the transaction. AO without examining any of the documents, simply made the addition on account of failure of the assessee to produce share subscribers and has not pointed out in the Assessment Order as to what were the discrepancies in the documents furnished by the assessee and what further enquiries he wanted to make from the directors of the subscribers to insist for their personal presence. Assessee, on the other hand, has explained that the observation of the Assessing Officer that there was very high premium received by the assessee as compared to the market value of the shares was wrong. He has submitted that the book value on the date of issue of shares was Rs. 191/- per each share and the shares were sold at Rs. 200/- each and therefore, the observation of the Assessing Officer simply on the basis of assumptions and presumptions was not justified. AO has not pointed out any specific doubt about the identity and creditworthiness of any of the share subscribers. Also further submitted that the assessee was having share subscription from the said subscribers for the last 10 years and all the details were furnished before the Assessing Officer. That it was beyond the control of the assessee to produce all the shareholders/directors of the corporate entities before the AO. The Assessee in this case, as noted above, explained about the identity, creditworthiness and financials etc. of each of the share subscriber company. 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 assessee could not produce the directors of the subscriber companies before the Assessing Officer, even then, 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. As decided in Paradise Inland Shipping Pvt. Ltd. 2017 (11) TMI 1554 - BOMBAY HIGH COURT that once the assessee has produced documentary evidence to establish the existence of the subscriber companies, the burden would shift on the revenue to establish their case. 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 Assessing Officer 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 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. - Decided in favour of assessee.
Issues Involved:
1. Addition of Rs. 3,58,00,000 on account of unexplained cash credit under Section 68 of the Income Tax Act, 1961. 2. Alleged violation of principles of natural justice in the assessment order. 3. Legality of the order passed by the CIT(A). 4. Confirmation of interest under Sections 234 A/B/C of the Income Tax Act. 5. Request to produce additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963. 6. Leave to press new, additional grounds of appeal or modify/withdraw existing grounds. Issue-Wise Detailed Analysis: 1. Addition of Rs. 3,58,00,000 on account of unexplained cash credit under Section 68 of the Income Tax Act, 1961: The assessee contested the addition of Rs. 3,58,00,000 made by the Assessing Officer (AO) as unexplained income under Section 68 of the Act. The AO treated the share capital and premium received by the assessee as unexplained income without examining the documents provided by the assessee, which included details of share applicants, ITR acknowledgements, audited accounts, bank statements, allotment letters, and the financial details of shareholders. The AO issued a notice under Section 131 but did not review the evidence submitted. The Tribunal noted that the AO failed to point out any discrepancies in the documents provided and made the addition in a mechanical manner. The Tribunal cited the Supreme Court's principles in the case of PCIT v. NRA Iron & Steel (P) Ltd., emphasizing that once the assessee submits documents proving the identity, genuineness, and creditworthiness of the subscribers, the burden shifts to the AO to conduct an independent inquiry. The Tribunal found that the AO did not fulfill this duty, making the addition unwarranted. 2. Alleged violation of principles of natural justice in the assessment order: The assessee argued that the assessment order violated the principles of natural justice as the AO did not consider the evidence provided and made the addition without proper examination. The Tribunal agreed, noting that the AO did not consider the documents submitted by the assessee and did not provide a reasoned order, thus violating the principles of natural justice. 3. Legality of the order passed by the CIT(A): The Tribunal found that the CIT(A) also failed to consider the evidence and submissions made by the assessee and upheld the AO's order in a mechanical manner. The CIT(A) did not point out any defects or discrepancies in the evidence provided by the assessee. The Tribunal termed the CIT(A)'s order as non-speaking and not sustainable in law. 4. Confirmation of interest under Sections 234 A/B/C of the Income Tax Act: The assessee contested the confirmation of interest under Sections 234 A/B/C of the Act. However, the Tribunal's decision to delete the addition of Rs. 3,58,00,000 rendered this issue redundant as the interest levied was based on the disputed addition. 5. Request to produce additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963: The assessee requested to produce additional evidence under Rule 29. However, since the Tribunal decided in favor of the assessee by deleting the addition, the necessity to admit additional evidence was not addressed in detail. 6. Leave to press new, additional grounds of appeal or modify/withdraw existing grounds: The assessee sought leave to press new or additional grounds or modify/withdraw existing ones. Given the Tribunal's decision to delete the addition, this request was not elaborated upon. Conclusion: The Tribunal concluded that the lower authorities, both the AO and CIT(A), failed to properly examine the evidence provided by the assessee and made the addition in a mechanical manner. The Tribunal ordered the deletion of the addition of Rs. 3,58,00,000 and allowed the assessee's appeal. The Tribunal emphasized the need for the revenue authorities to conduct independent inquiries and provide reasoned orders, especially when the assessee has submitted substantial evidence to support their claims.
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