2019 (12) TMI 308 - AT - Income Tax

Addition u/s. 68 - unexplained creditors - explanation offered by the assessee was not found to be correct and simultaneous treated the same as cessation of liability u/s. 41(1) of the act as M/s Radhaman Holding has denied any liability payable by the assessee - assessee has contended before the ld. CIT(A) that it was prevented by sufficient cause for producing facts and evidences before the assessing officer and requested to admit the same as per provision of rule 46 of the IT Rule 1962 - CIT(A) has admitted such evidences for the sake of substantial justice to decide the issue on merit - HELD THAT - In the remand report, the assessing officer has submitted that in view of the facts and circumstances, the matter may be decided on merits as the facts during the assessment was contrary to the appellate proceedings. Considering the above facts and findings of ld. CIT(A), it is undisputed fact that assessee has purchased 5 lacs of shares of Parsoli Corporation for a consideration of ₹ 6.75 crore through Parsoli Corporation Ltd. who is also a registered share broker with the BSE and out of these shares 4200 were sold during the year under consideration and the assessee has declared short term capital gain of ₹ 21,82,462 on the sale of these shares. The ld. CIT(A) has categorically established in his findings that these shares issued were not purchased from Radharaman Holding Pvt. Ltd. but 5 lacs shares of Parsoli Corporation Ltd. was purchased through Parsoli Corporation Ltd. and these transactions were not correctly declared in the books of account of the assessee as one of the directors of the assessee company was a relative of the director of Parsoli Corporation Ltd. for the reason of apprehension of action from SEBI. Considering the fact and circumstances, we do not find any reason to interfere in the finding of ld. CIT(A), therefore, the appeal of revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act on account of unexplained creditors.
2. Deletion of addition made under Section 41(1) of the Income Tax Act in respect of ceased liability.

Detailed Analysis:

Issue 1: Deletion of Addition under Section 68
The revenue contended that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in deleting the addition of ?6,75,00,000 made under Section 68 of the Income Tax Act on account of unexplained creditors. The Assessing Officer (AO) had observed that the assessee showed an amount of ?6,49,51,200 as sundry creditors, purportedly payable to M/s Radharamana Holdings Pvt. Ltd. The AO issued a notice under Section 133(6) to the said party, which denied any transactions with the assessee. Consequently, the AO treated the amount of ?6.75 crore as the assessee's income under Section 68, as the explanation provided by the assessee was deemed incorrect.

The CIT(A), however, found that the assessee had actually purchased 5 lakh shares of Parsoli Corporation Ltd. through Parsoli Corporation Ltd., not Radharamana Holdings Pvt. Ltd. The CIT(A) noted that the shares were credited in the demat account of the assessee, and part of these shares were sold, generating short-term capital gains duly offered for taxation. The CIT(A) accepted the assessee's submission that the transaction was recorded in the name of Radharamana Holdings Pvt. Ltd. to avoid SEBI action, as one of the directors of the assessee company was a relative of a director of Parsoli Corporation Ltd. The CIT(A) concluded that the purchase of shares for ?6.75 crore was genuine and deleted the addition made by the AO under Section 68.

Issue 2: Deletion of Addition under Section 41(1)
The AO also invoked Section 41(1) of the Income Tax Act, treating the liability of ?6.75 crore as ceased, since Radharamana Holdings Pvt. Ltd. denied any outstanding balance. The CIT(A) rejected this view, stating that for Section 41(1) to apply, there must be evidence of remission or cessation of liability, which was not present in this case. The CIT(A) held that the liability of ?6,49,51,200 existed in the name of Parsoli Corporation Ltd., as confirmed by the latter's books, and thus, Section 41(1) was not applicable.

Conclusion
The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, confirming that the assessee had indeed purchased shares from Parsoli Corporation Ltd. and not Radharamana Holdings Pvt. Ltd. The ITAT found no reason to interfere with the CIT(A)'s findings, and thus, dismissed the revenue's appeal.

Order Pronounced: The appeal of the revenue is dismissed.