2019 (10) TMI 1228 - AT - Income Tax

Unexplained investment in factory building - addition u/s 69B - commercial production start - HELD THAT - Tribunal was pleased to specifically observed the undisputed fact that the assessee has started commercial production from 22.11.2001 and the slip which was found on 22.01.2002 i.e. within the 3 months from the date of commencement of commercial production does not contain any date when the payment was made by the assessee. Neither any description against the amount in question is mentioned in the particular slip. It is only in the answer to question no.20 Shri Rohitbhai Amin stated that he paid in cash ₹ 84 lacs to M/s. Built Quick Construction Co. from time to time since 01.04.2000 to December, 2000 (Approx). How much payment were made prior to the commercial production was also not brought on record. Though the said Shri Rohibhai Amin deposed not only by the Board of Directors but also in the individual capacity. It was neither on record that whether he was having authorization on behalf of Directors. There is no such specific details as regards the assessee company has whether started its commercial production when the payment was made to M/s. Built Quick Construction Co. Disclosure made by Shri Rohibhai Amin whether belong to the assessee or to Shri Rohibhai Amin in individual capacity is to be decided especially when the assessee company did not have any source of income except the capital receipt by way of share contribution or borrowings. These aspects of the matter have not been considered either by the Learned CIT(A) or by the Learned AO which was directed to be considered by the Learned AO by the order dated 13.10.2006 passed by the Hon ble ITAT. Authorities below has not acted in the manner has been specified by the Hon ble Tribunal in order to deal the issue afresh; the directives of the Hon ble Tribunal has not been followed in its letter and spirit and hence, we are of the observation to restore the issue to the file of the Learned AO with a specific direction upon him to deal with the issue afresh in the light of the observations made by the Hon ble Tribunal - Assessee s appeal is allowed.

Summary

Issues Involved:
1. Non-compliance with ITAT directions by the Assessing Officer and CIT(A).
2. Addition of ?84 lacs as unaccounted investment in the construction of the factory building.
3. Addition of ?7,59,000 as unaccounted payment.

Issue-wise Detailed Analysis:

1. Non-compliance with ITAT directions by the Assessing Officer and CIT(A):

The appellant contended that both the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] failed to follow the clear directions of the ITAT, which had set aside certain issues for reconsideration. The ITAT had previously directed the AO to decide the issues afresh, considering the observations made by the Tribunal and after providing a proper opportunity of hearing to the assessee. The ITAT had particularly noted the need to determine whether the disclosure made by Shri Rohitbhai Amin pertained to the assessee company or to him in his individual capacity, and whether the assessee company had started its commercial production when the payment was made. These directives were not adequately addressed by the AO in the reassessment.

2. Addition of ?84 lacs as unaccounted investment in the construction of the factory building:

The search action under section 132 of the Income Tax Act revealed a piece of paper indicating a cash payment of ?84 lacs. This was admitted by Shri Rohitbhai Amin, a director of the company, in his statement recorded under section 132(4). The AO added this amount as undisclosed income under section 69C, which was confirmed by the CIT(A). However, the ITAT observed that the statement by Shri Rohitbhai Amin was made in both his individual capacity and on behalf of the company, without clear authorization from the Board of Directors. The ITAT also noted that the slip did not specify the date of payment, and it was unclear whether the payment was made before the company started commercial production. The ITAT emphasized the discretionary nature of section 69B, which does not mandate treating excess investment as income in every case. The ITAT directed the AO to re-examine the issue, considering whether the investment was made by the director individually or by the company, and whether the company had any source of income other than capital receipts.

3. Addition of ?7,59,000 as unaccounted payment:

The CIT(A) upheld the addition of ?7,59,000 made by the AO on the grounds of unaccounted payment. However, the detailed analysis and reasoning for this addition were not explicitly discussed in the judgment. The focus remained primarily on the larger issue of the ?84 lacs unaccounted investment.

Conclusion:

The ITAT found that the AO and CIT(A) did not comply with its earlier directions to reconsider the issues afresh. The ITAT reiterated the need for a detailed examination of whether the ?84 lacs unaccounted investment pertained to the company or the individual director and whether the company had started commercial production at the time of the payment. The ITAT restored the matter to the AO with specific directions to address these aspects and provide the assessee a proper opportunity to present evidence. The appeal was allowed, and the matter was remanded back to the AO for fresh consideration in line with the ITAT's observations.