2018 (9) TMI 789 - AT - Income Tax

Addition u/s 68 - CIT-A deleted the entire additions on the basis of few sample shareholders - Held that - Assessee has filed confirmation letters of all the 413 persons and during the remand proceedings also, the AO was directed to verify the identity, creditworthiness and genuineness of the transactions. It was the decision of the AO to pick up only 10 persons out of 413 persons and the assessee produced not only these 10 persons but also produced 7 more shareholders. As seen from the remand report reproduced by the CIT (A) AO was satisfied about the creditworthiness of these shareholders for investment in the assessee s company. AO has not made any adverse comments on the acceptance or otherwise of other 400 people as shareholders, we find that the AO has also not given the breakup of the investment made by the 10 persons or the percentage of investment which has been proved by the assessee to accept the entire investment as genuine. Thus deleting the entire additions on the basis of few sample shareholders is not correct. Therefore, we deem it fit and proper to remand the issue to the file of the AO with a direction to verify the investments atleast to the tune of 25% to 50% and findings on such material may be adopted for coming to any conclusion. - Decided in favour of revenue for statistical purposes.

Summary

Issues:
1. Appeal against CIT (A) order for A.Y 2012-13.
2. Deletion of addition of ?14,84,52,240.
3. Compliance with conditions under section 68 of the I.T. Act, 1961.
4. Adequacy of findings for allowing relief.
5. Verification of identity, creditworthiness, and genuineness of transactions.

Analysis:
1. The case involves an appeal by the Revenue against the CIT (A) order for the Assessment Year 2012-13. The Revenue contested the deletion of an addition amounting to ?14,84,52,240 made by the Assessing Officer (AO) during the assessment proceedings under section 143(3) of the Income Tax Act, 1961. The AO observed an increase in share capital of the assessee, prompting a request for details of contributors. The assessee claimed that most shareholders were agriculturists investing from agricultural income, lacking proof of ownership and payment details. The AO treated the unverified credits as income from undisclosed sources, leading to an appeal by the assessee before the CIT (A).

2. The CIT (A) allowed the assessee to furnish additional information and conducted a remand proceeding where the AO examined a sample of shareholders. Subsequently, the CIT (A) deleted the additions based on the satisfactory explanation provided by the examined shareholders. The Revenue challenged this decision, arguing that only a fraction of shareholders were verified, questioning the genuineness of the transactions. The Tribunal noted the lack of detailed findings on the verified shareholders' investments and directed a re-verification of a significant portion of the investments to determine the genuineness of the entire capital infusion.

3. The Tribunal emphasized the importance of verifying a substantial percentage of investments to draw conclusions on the genuineness of the entire share capital. While acknowledging the satisfactory verification of the sampled shareholders, the Tribunal found the deletion of the entire addition premature without a comprehensive assessment of a significant portion of the investments. Consequently, the Tribunal remanded the issue back to the AO for a thorough verification of investments ranging from 25% to 50%, with the findings crucial for determining the legitimacy of the total capital infusion.

4. In conclusion, the Tribunal allowed the Revenue's appeal for statistical purposes, emphasizing the necessity of a more extensive verification process to ascertain the genuineness of the share capital infusion. The decision highlighted the significance of thorough scrutiny in cases involving substantial capital contributions, underscoring the need for detailed assessments to prevent premature deletions of additions based on limited verifications.