2015 (3) TMI 602 - AT - Income Tax

Unexplained share capital - CIT(A) deleted part addition - proceedings initiated under section 153A - Held that - Out of this unexplained ₹ 30 lakhs, ₹ 20 lakhs has been received from the three companies A. C. Steels and Holdings P. Ltd., Grewal Steels and Holdings P. Ltd. and Sumit Credit Co. P. Ltd., address of these companies was Room No. 6/7 on 4th Floor, 6 Clive Road, Kolkata. In this regard the assessee has submitted necessary details which included copy of the Income-tax return, balance-sheet, bank statement, share application form, certificate of incorporation, memorandum and articles of association. Nothing adverse has been found or commented upon by the Assessing Officer about these documents submitted by the assessee-company. The Assessing Officer's doubt has arisen merely on the ground that these are Kolkata based companies, the addresses of these companies are common. For this he has carried out enquiry and obtained inspector report which has been quoted in the assessment order. On the basis of this report, the Assessing Officer has drawn an adverse inference holding that the companies are not in existence at the place stated. We note that the Assessing Officer is not correct in drawing such adverse inference on the basis of this report. As rightly pointed out by AR the inspector has visited this premises on the evening at 4.30 p.m. The inspector has confirmed that there was an office with a name plate, A. S. Grewal and Co. The inspector has further stated that the registered office of these companies belongs to a tax consultant. On the basis of these findings, the Assessing Officer has drawn adverse inference and made the addition. We are of the view that the Assessing Officer is not justified on the basis of this inspector report to hold that the identity of the shareholder company has not been established. On the contrary, as rightly pointed out, the common surname Grewal is good enough to indicate that the offices of these companies were at that premises. The inspector did not make any effort to make any further enquiry about these companies and also the Assessing Officer did not make any effort to carry the investigation further. The sole basis for making addition about these companies is the inspector report. No doubts have been raised by the Assessing Officer about the documents filed by the assessee-company. The inspector report as alleged above cannot be a basis for disbelieving the assessee's version. Further in the case of Sofed Comtrade Pvt. Ltd. we note that no enquiry whatsoever has been done by the Assessing Officer. The observations made by him are only raising a doubt without carrying out any investigation. Surprisingly we note that the Assessing Officer was having doubt in mind but he never issued any notice or summon to any of the directors. It is not a case where any confessional statement has been recorded by any entry provider of accommodation entry. It is a case of a doubt raised by the Assessing Officer but such doubt has not been converted into any evidence or material so as to substantiate the addition. We are of the view that the additions made by the Assessing Officer in respect of share capital received from these four companies are not justified and accordingly the same is directed to be deleted. As regards the fifth company, i.e., Prime Vyapar Pvt. Ltd. we note that the inspector has carried out the enquiry and in this report the inspector has pointed out that on local enquiry it is revealed that there is no company called by this name at the address and there is only a residential place at the said premise. The learned authorised representative during the course of the hearing could not rebut this finding of the inspector. As specific finding of the inspector which remains unrebutted, we are of the view that addition of ₹ 5 lakhs in respect of the share capital received from Prime Vyapar Pvt. Ltd. has rightly been made by the Assessing Officer and accordingly this addition is confirmed.- Decided partly in favour of assessee. Disallowance u/s 14A read with rule 8D - Held that - In this regard we notice that the assessment year under consideration is 2005-06 and rule 8D is effective from the assessment year 2008-09. Accordingly the Assessing Officer was not justified in invoking the provisions of rule 8D for the assessment year under consideration. We further note that the assessee's investment is mainly in group companies. - Decideda in favour of assessee.

Summary

Issues Involved:
1. Deletion of Rs. 9,00,000 addition made by the Assessing Officer on account of unexplained share capital.
2. Validity of proceedings initiated under section 153A.
3. Confirmation of addition of Rs. 21,00,000 on account of share application money.
4. Disallowance of Rs. 18,645 under section 14A by invoking rule 8D.
5. Disallowance of Rs. 14,382 on account of deferred revenue expenses.

Detailed Analysis:

1. Deletion of Rs. 9,00,000 Addition Made by the Assessing Officer:
The primary issue in the Revenue's appeal was the deletion of Rs. 9,00,000 out of the Rs. 30,00,000 addition made by the Assessing Officer (AO) on account of unexplained share capital. The AO suspected the share capital received from Kolkata-based companies was accommodation entries and made the addition under section 68 of the Income-tax Act. The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the non-genuineness of the share capital but restricted the addition to Rs. 21,00,000, giving relief of Rs. 9,00,000. The Tribunal noted that the AO's adverse inference was based on an inspector's report that did not conclusively prove the non-existence of the companies. The Tribunal found the AO's reliance on the inspector's report unjustified and deleted the addition of Rs. 9,00,000.

2. Validity of Proceedings Initiated Under Section 153A:
The assessee contended that the proceedings under section 153A were invalid as no valid search was carried out. However, the Tribunal dismissed these grounds as they were not pressed by the assessee during the hearing.

3. Confirmation of Addition of Rs. 21,00,000 on Account of Share Application Money:
The CIT(A) confirmed the addition of Rs. 21,00,000 out of the total Rs. 30,00,000 share capital received, which was not found genuine. The Tribunal examined the inspector's report and found that the AO's adverse inference regarding the non-existence of companies was not substantiated. The Tribunal noted that the AO did not issue any notice or summon to the directors of the companies and there was no confessional statement from any entry provider. The Tribunal directed the deletion of additions related to four companies but upheld the addition of Rs. 5,00,000 received from Prime Vyapar Pvt. Ltd. due to the unrebutted inspector's report indicating the non-existence of the company.

4. Disallowance of Rs. 18,645 Under Section 14A by Invoking Rule 8D:
The AO made an addition of Rs. 18,645 under section 14A by invoking rule 8D. The Tribunal noted that rule 8D is applicable from the assessment year 2008-09 onwards and not for the assessment year 2005-06. The Tribunal found that the assessee's investment was mainly in group companies and deleted the addition.

5. Disallowance of Rs. 14,382 on Account of Deferred Revenue Expenses:
This issue was not argued by the assessee during the hearing and was dismissed as not pressed.

Conclusion:
The Tribunal partly allowed the appeal of the Revenue and the cross-objection of the assessee. The Tribunal deleted the addition of Rs. 9,00,000 related to unexplained share capital, confirmed the addition of Rs. 5,00,000 from Prime Vyapar Pvt. Ltd., and deleted the disallowance under section 14A. The order was pronounced in open court on October 10, 2014.