2018 (9) TMI 1245 - AT - Income Tax

Addition u/s 68 - discharge of onus or proof - Held that - When more than 23 years have already elapsed since the investments were made by these shareholders in assesseee s share capital no further opportunities can be given to the revenue to start fresh round of litigation more-so nothing incriminating has been brought on record by the authorities below. It is matter of record that these shareholders name addresses GIR/PAN etc are all on record along with their confirmation letter confirming that they made investments in the assessee company. These shareholders have also confirmed that these share investments were made out of their own capital and payments were all made by cheque. We are inclined to accept the contentions of the assessee by holding that the assessee has discharged its burden/onus as was cast u/s 68 of the 1961 Act with respect to share investment of 1 00 00 000/- made in the assessee company. We order deletion of the additions. Unexplained income - Held that - The onus as well burden is very heavy in the instant case on the assessee to bring on record cogent evidences to substantiate that there is no income component in the said differential amount of 91 09 444/- which is liable to be chargeable to tax within mandate of the 1961 Act. The assessee and revenue erred in ignoring the mandate of the 1961 Act which is supported by Article 265 of the Constitution of India to bring to tax correct income of the assessee. Under these peculiar facts and circumstances of the case we are constraint to set aside and restore this issue back to the file of the AO for fresh determination of the issue on merits in accordance with law. We in exercise of powers u/s 254 of the 1961 Act direct AO to admit all necessary evidences and explanations which the assessee files before the AO in denovo assessment proceedings in its defence and thereafter adjudicate the same on merits in accordance with law despite the fact that no revised return of income was filed by the assessee .

Summary

Issues Involved:
1. Addition of ?1,00,00,000/- as unexplained cash credit under Section 68 for AY 1995-96.
2. Unexplained income of ?91,09,444/- credited in Reserve and Surplus Account for AY 1997-98.

Issue 1: Addition of ?1,00,00,000/- as unexplained cash credit under Section 68 for AY 1995-96

The assessee filed returns for AY 1995-96 declaring "Nil" income, and initially, the Revenue accepted the claim for deduction under Section 80IA. However, subsequent survey and search actions revealed that the assessee had no manufacturing unit at Daman, leading to the reopening of the assessment. The AO denied the deduction under Section 80IA and added ?1,00,00,000/- as unexplained share capital under Section 68.

The CIT(A) confirmed the addition of ?1,00,00,000/-, which led the assessee to appeal to the tribunal. The tribunal remitted the issue back to the AO for fresh consideration, directing necessary inquiries from the shareholders.

In the second round, the AO issued notices under Section 133(6) to the shareholders, who confirmed their investments and provided PAN/GIR numbers. Despite confirmations, the AO held that the genuineness and creditworthiness of the shareholders were not established and confirmed the addition.

The CIT(A) upheld the AO's decision, citing that mere confirmation of identity and cheque payments were insufficient without proving the genuineness and creditworthiness of the shareholders.

Upon further appeal, the tribunal noted that the AO and CIT(A) failed to conduct effective inquiries as directed previously. The tribunal emphasized that the AO should have issued summons under Section 131 or fresh notices under Section 133(6) to obtain the required evidence. Given the lapse of over 17 years and the shareholders' confirmations, the tribunal concluded that the assessee had discharged its burden under Section 68. The tribunal ordered the deletion of the addition of ?1,00,00,000/- and allowed the appeal for AY 1995-96.

Issue 2: Unexplained income of ?91,09,444/- credited in Reserve and Surplus Account for AY 1997-98

The assessee had two sets of audited accounts for FY 1996-97 from different chartered accountants, with a discrepancy of ?91,09,444/- in the Reserve and Surplus Account. The assessee explained that the revised audited accounts were prepared due to errors in the initial audit and claimed no tax implications due to deductions under Sections 80HHC and 80IA.

The AO treated this amount as undisclosed income for AY 1997-98, as it was not reflected in the audited accounts for FY 1995-96. The CIT(A) affirmed the AO's decision, leading the assessee to appeal to the tribunal.

The tribunal observed that both the assessee and Revenue failed to adhere to the mandate of Article 265 of the Constitution, which requires correct tax assessment. The tribunal emphasized the need for correct income computation and noted the heavy burden on the assessee to substantiate the non-taxability of the ?91,09,444/-.

Given the peculiar facts, the tribunal set aside the issue and remitted it back to the AO for fresh determination, directing the AO to admit all necessary evidence and explanations from the assessee. The tribunal instructed the AO to provide adequate opportunity for the assessee to be heard and adjudicate the matter on merits according to law.

Conclusion:
The appeal for AY 1995-96 was allowed, and the addition of ?1,00,00,000/- was deleted. The appeal for AY 1997-98 was allowed for statistical purposes, with the issue remitted back to the AO for fresh consideration.