2018 (4) TMI 1419 - AT - Income Tax

Unexplained investment - Held that - It is also accepted fact that when the assessee has obtained such a huge investments in the company and if the investors companies directors are not examined it is apparent what kind of investment it is. We fully agree with the arguments of the DR. On production of all details of the investor companies directors of the investor companies and thereafter examining them AO will decide the issue afresh. AO is directed to minutely examine these investments in the assessee company in the light of our observations made earlier in this order. In case if after giving the notice to the assessee company if assessee does not furnish the requisite details and fail to produce the directors of the investor companies along with the books of those companies AO may take view in accordance with the law. In the result we do not agree with the order of the ld CIT (A) - In the result ground No. 1 4 of the appeal of the revenue is allowed accordingly. Addition u/s 68 - Held that - We direct the assessee to produce relevant details with respect to the identity creditworthiness of the investor companies as well as the genuineness of the transaction. In the peculiar circumstances and the facts and where the post-search enquiries also prove otherwise the higher onus is cast upon the assessee and therefore The assessee is directed to discharge its onus by producing the relevant details as well as the books of accounts of the investor companies along with the directors of those companies before the assessing officer for the examination. They need to explain that how despite making such a huge investments it is not shown in the balance sheet as investments. AO may examine the directors of the investor company along with the books of account and respective bank statements and balance sheets of the investor company and then decide the issue in accordance with the law

Issues Involved:
1. Legality and correctness of the CIT(A)'s order.
2. Deletion of additions made by AO on account of unexplained credit/share capital.
3. Admission and consideration of additional evidence by CIT(A).
4. Substantive versus protective basis for additions.

Issue-wise Detailed Analysis:

1. Legality and Correctness of the CIT(A)'s Order:
The revenue contended that the CIT(A)'s order was incorrect in law and facts, particularly in deleting the additions made by the AO regarding unexplained credit/share capital. The CIT(A) had deleted the addition of ?70 lakhs made under section 68 of the Income Tax Act, which the AO had added due to the assessee's failure to prove the genuineness and creditworthiness of the investors. The CIT(A) accepted the additional evidence provided by the assessee, which included tax returns, bank statements, and confirmations from shareholders, and concluded that the identity and capacity of the shareholders were not in doubt.

2. Deletion of Additions Made by AO on Account of Unexplained Credit/Share Capital:
The CIT(A) deleted the addition of ?70 lakhs made by the AO, reasoning that the shareholders were assessed to tax by the same AO, and their tax records and other documents were available. The CIT(A) found that the transfer of shares was genuine based on ROC documents and concluded that the addition made by the AO could not be sustained.

3. Admission and Consideration of Additional Evidence by CIT(A):
The revenue argued that the CIT(A) admitted additional evidence without giving the AO a proper opportunity to examine and comment on it, violating Rule 46A of the Income Tax Rules. The Tribunal noted that the CIT(A) did not record reasons for admitting the additional evidence, nor did the AO get a chance to verify it. Citing the Delhi High Court's decision in CIT vs. Manish Buildwell (P) Ltd, the Tribunal emphasized the need for strict compliance with Rule 46A, which requires the AO to be given a reasonable opportunity to examine and rebut additional evidence.

4. Substantive versus Protective Basis for Additions:
In the case of Diamond Hut India (P) Ltd for AY 2008-09, the CIT(A) deleted an addition of ?3.17 crores on the grounds that the AO failed to verify the details of the shareholders. However, the CIT(A) upheld an addition of ?3.55 crores on a protective basis, directing the AO to carry out further inquiries. The revenue contested this, arguing that the addition should have been upheld on a substantive basis due to the lack of evidence supporting the creditworthiness and genuineness of the transactions. The Tribunal found that the CIT(A) failed to provide a clear rationale for differentiating between the two sets of additions and directed the AO to re-examine the entire issue.

Conclusion:
The Tribunal set aside the CIT(A)'s orders and remanded the cases back to the AO for fresh consideration, directing the AO to examine the additional evidence provided by the assessee and to give the assessee an opportunity to produce the directors of the investor companies along with their books of accounts. The Tribunal emphasized the need for a thorough examination of the identity, creditworthiness, and genuineness of the transactions to determine the correct tax liability. All three appeals by the revenue were allowed for statistical purposes.

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