2018 (10) TMI 1295 - AT - Income Tax

Addition u/s. 68 - CIT(A) found that the assessee has submitted all the necessary details of the parties providing the loans - Held that - The observation of the CIT(A) that the A.O. has given misleading information is itself misleading and does not deserve to be sustained. When it is obvious that there is such close proximity in these companies and the evidence has been given by the A.O. that it is a modus operandi to route money in the form of share application and share money. In such situation, the minimum which was expected from the CIT(A) was to make necessary enquiry and cogently rebut the finding of the A.O. It is settled law from the decision in the case of Sumati Dayal vs. CIT 1995 (3) TMI 3 - SUPREME COURT and CIT vs. Durga Prasad More 1971 (8) TMI 17 - SUPREME COURT that the Revenue authorities are not supposed to put on blinkers but should look into the surrounding circumstances and the contemporaneous evidence. CIT(A) has passed an order not based upon the correct facts. Hence, we are remitting the issue to the file of the CIT(A) to consider the issue afresh and pass a speaking order on all the issues raised by the A.O. - Appeal by the Revenue stands allowed for statistical purpose.

Issues Involved:

1. Deletion of addition made under Section 68 of the Income Tax Act, 1961 by the CIT(A).
2. Genuineness of share application money and share premium received by the assessee company.
3. Adequacy of the Assessing Officer's (A.O.) investigation and findings.
4. Powers and actions of the CIT(A) in accepting additional evidence and rebutting the A.O.'s findings.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made under Section 68 of the Income Tax Act, 1961 by the CIT(A):

The primary issue raised by the Revenue is the deletion of the addition of ?3,07,00,000/- made under Section 68 of the Income Tax Act, 1961 by the CIT(A). The A.O. had added this amount back to the total income of the assessee, treating it as unexplained cash credit, citing that the share application money and premium received were not genuine transactions. The CIT(A), however, directed the A.O. to delete this addition, which led to the Revenue's appeal.

2. Genuineness of Share Application Money and Share Premium Received by the Assessee Company:

The A.O. questioned the genuineness of the share application money and premium received by the assessee company, highlighting several red flags:
- The companies providing the share application money were found to have generated funds primarily through share application money themselves.
- The nature of businesses of these companies was very general, with negligible income and no significant business activity.
- The companies shared common addresses and directors, suggesting a cartel-like arrangement.
- The investment in the assessee company was deemed highly risky and questionable, given the lack of business activity and assets.

The CIT(A) rebutted these findings, stating that the A.O.'s observations were misleading and based on presumptions rather than facts. The CIT(A) noted that the companies were operating from different addresses and that there was no evidence to suggest that these companies were engaged in the "Business of Entries" as alleged by the A.O.

3. Adequacy of the Assessing Officer's Investigation and Findings:

The A.O. conducted a detailed investigation, including issuing notices under Section 133(6) of the Act and referring the matter to the Investigation Wing in Kolkata. The A.O. found that the companies providing the share application money were interlinked, with common directors and addresses, and lacked credibility. The A.O. concluded that the transactions were structured to avoid tax payments.

The CIT(A), however, did not conduct any further enquiry and relied on the share valuation report submitted by the assessee. The CIT(A) also referred to various case laws, including the decision of the Hon'ble Apex Court in the case of CIT vs. Lovely Exports (P) Ltd., to support the deletion of the addition.

4. Powers and Actions of the CIT(A) in Accepting Additional Evidence and Rebutting the A.O.'s Findings:

The CIT(A) admitted additional evidence, including a valuation report for the shares, and emphasized that he had full power to make further necessary enquiries. However, the Tribunal noted that the CIT(A) did not conduct any further enquiry to rebut the A.O.'s findings. The Tribunal highlighted that the CIT(A)'s observations were not based on correct facts and that the surrounding circumstances and contemporaneous evidence should have been considered, as per the principles laid down by the Hon'ble Apex Court in the cases of Sumati Dayal vs. CIT and CIT vs. Durga Prasad More.

Conclusion:

The Tribunal found that the CIT(A) had not adequately addressed the A.O.'s findings and had not conducted a thorough enquiry. Therefore, the Tribunal remitted the issue back to the CIT(A) to consider the matter afresh and pass a speaking order on all the issues raised by the A.O. The appeal by the Revenue was allowed for statistical purposes.

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