2019 (11) TMI 916 - AT - Income Tax

Addition u/s 68 - unexplained capital introduced by members of AOP - on perusal of the partners/members capital account for the year ended 31st March, 2011, AO observed that members have introduced huge amount of capital in the assessee s business - HELD THAT - We find that the AO has given adequate opportunity to the assessee during the course of assessment proceedings to furnish the documentation in support of the capital introduction by Sh. Yogindra Singh Chouhan - notice u/s 133(6) was also issued which remained uncomplied with and even during the remand proceedings, there is nothing which has been filed or brought on record in support of the substantiating the source of capital contribution by Sh. Yogindra Singh Chouhan. There is movement in his personal account maintained with the assessee s AOP, however, the fact of the matter is that the explanation regarding the source of the capital introduction by way of cash and the creditworthiness of Sh. Yogindra Singh Chouhan remained unsubstantiated till date and initial onus cast on the assessee is not satisfied in the instant case. No infirmity in the action of the lower authorities. Hence, the addition of ₹ 13,00,000/- is hereby sustained. In respect of Sh. Bhanwar Singh Makori who has contributed ₹ 15,00,000/- towards his capital contribution, the ld. CIT(A) has not accepted the contention of the assessee stating that the assessee has failed to prove his creditworthiness. Before us, it was submitted that he was produced for verification and his statement was also recorded during the course of remand proceedings where he has accepted to have given an amount of ₹ 15,00,000/- in cash by way of his capital contribution. On perusal of his financial statement for the year ended 31.03.2011, we find that he has a capital of over ₹ 1 crore and in the said financial statement, he has also reported his investment in the assessee s AOP. We therefore find that the assessee has discharged the necessary burden cast on it in terms of satisfying the creditworthiness of Sh. Bhanwar Singh and the addition of ₹ 15,00,000 so made is hereby directed to be deleted. In respect of Sh. Mota Ram Saini, the ld. CIT(A) has rejected the contention of the assessee stating that he was neither produced in person nor any confirmation was filed before the Assessing Officer. In this regard, the ld. AR submitted that Sh. Mota Ram Saini has filed an affidavit by way of confirmation wherein he has stated that he has agriculture land holding of 20 bighas and his agriculture income is about ₹ 50,000/- per annum and he has yearly income of about ₹ 1,50,000/- for F.Y 2010-11 and out of his current year income and past savings, he has contributed ₹ 2,00,000/- towards his share in the capital of the assessee s AOP. We find that the contents of the affidavit have not been disputed by the Revenue and considering the same, the addition of ₹ 2 lacs is directed to be deleted. Regarding the capital contribution Sh. Iqbal and Sh. Iqram, it is noted that they were produced for verification during the remand proceedings and in their statement, they have confirmed to have given an amount of ₹ 1,00,000/- each as capital contributions and have also explained the source of their capital contribution by way of income and past savings. In the light of the same, the addition so made is hereby directed to be deleted. - Decided partly in favour of assessee

Issues Involved:
1. Addition of ?32 lacs under Section 68 by treating the capital introduced by certain members of AOP as unexplained.

Issue-wise Detailed Analysis:

1. Addition of ?32 lacs under Section 68:

Background:
The assessee, an association of persons (AOP), filed its return of income declaring a total income of ?29,22,560/-. During the assessment, the AO observed that members introduced capital aggregating to ?76,45,000/- and treated it as unexplained capital introduction. The assessee appealed, and the CIT(A) deleted ?44,45,000/- but confirmed ?32 lacs as unexplained. The assessee further appealed to the ITAT.

Arguments by Assessee:
The assessee argued that the capital contributions were made by members who were part of the AOP since its inception. The members had entered into a partnership deed and were jointly and severally liable for tax payments. Due to disputes, some members did not cooperate during the assessment. The assessee provided affidavits, confirmations, bank statements, and ITRs of the members. Specific explanations for each member’s contribution were provided as follows:

- Yogendra Singh Chouhan: Contributed ?13,00,000/-. The member had withdrawn the entire amount, resulting in a debit balance. The assessee requested the AO to call him for verification, which was not enforced.
- Bhanwar Singh Makori: Contributed ?15,00,000/-. The source was old savings, contract receipts, income from property dealing, and family agricultural income. He was assessed to tax and had a capital of ?1,08,19,601/- as of 31-03-2011.
- Mota Ram Saini: Contributed ?2,00,000/-. He was an agriculturist with 20 bighas of land, earning from agriculture, onion dealing, and dairy. He filed an affidavit confirming the contribution.
- Iqbal: Contributed ?1,00,000/-. He was a tractor mechanic earning about ?13,000/- per month. He invested from his income and savings. He filed an affidavit confirming the contribution.
- Iqram: Contributed ?1,00,000/-. Similar to Iqbal, he was a tractor mechanic earning about ?13,000/- per month. He invested from his income and savings. He filed an affidavit confirming the contribution.

Arguments by Revenue:
The Revenue supported the CIT(A)’s order, highlighting the following findings:
- Yogendra Singh Chouhan: The genuineness of the cash transaction of ?13,00,000/- remained unexplained. The submission of a driving license and bank account statement did not prove the transaction's genuineness.
- Bhanwar Singh Makori: The source of ?15,00,000/- was claimed to be business savings and family agricultural income, but no agricultural income was declared in the ITR. The contention that the amount was kept at home was not accepted.
- Mota Ram Saini: The assessee neither produced the person nor filed any confirmation. The source and genuineness of ?2,00,000/- remained unexplained.
- Iqbal and Iqram: Both claimed to have given ?1,00,000/- each from their income and savings. However, no supporting documents were provided to substantiate their ability to save such amounts.

ITAT’s Findings:
- Yogendra Singh Chouhan: The ITAT found that the assessee failed to substantiate the source of the ?13,00,000/- capital introduction. The addition was sustained.
- Bhanwar Singh Makori: The ITAT found that the assessee provided sufficient evidence of his creditworthiness, including a financial statement showing over ?1 crore in capital. The addition of ?15,00,000/- was deleted.
- Mota Ram Saini: The affidavit confirmed his income and savings, which were not disputed by the Revenue. The addition of ?2,00,000/- was deleted.
- Iqbal and Iqram: Both were produced for verification and confirmed their contributions. The additions of ?1,00,000/- each were deleted.

Conclusion:
The appeal was partly allowed. The addition of ?13,00,000/- for Yogendra Singh Chouhan was sustained, while the additions for Bhanwar Singh Makori, Mota Ram Saini, Iqbal, and Iqram were deleted.

Order Pronouncement:
The order was pronounced in the Open Court on 01/10/2019.

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