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2025 (2) TMI 644 - AT - Income TaxAddition u/s 68 and u/s. 69C - unexplained cash credit - assessee company has received share application money with premium - AO treated the share application money as unexplained income of the assessee and also treated the commission expenses calculated at 2.5% on the above amount of as unexplained expenditure u/s. 69C - CIT(A) deleted addition - HELD THAT - CIT A on verification of the MCA website as provided by the assessee company held that neither those persons were not directors in the year under consideration nor thereafter. So when a person was not director or director for few months during the year under consideration then the specific knowledge about the investment in share capital in the assessee company could not be expected from him. So their affidavits does not have any evidentiary value against the assessee company more so when their affidavits have not been provided to the assessee company for rebuttal during the assessment proceedings. Similarly they were not presented for cross examination by the assessee in the assessment proceedings. Thus AO has made the additions based on surmises and conjectures without making proper verification of facts with relevant materials and evidences whereas the CIT A made full verification of facts material evidences and called for a remand report from the AO and deleted the additions. Further Revenue could not dispute the above findings with relevant materials or evidences. Decided against revenue.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment were:
ISSUE-WISE DETAILED ANALYSIS 1. Treatment of Share Application Money as Unexplained Cash Credits Relevant legal framework and precedents: The AO invoked Section 68 of the Income Tax Act, which pertains to unexplained cash credits. The assessee is required to prove the identity, creditworthiness, and genuineness of the transactions. Court's interpretation and reasoning: The Tribunal relied on the CIT(A)'s findings that the assessee had provided sufficient documentary evidence, including confirmations from the subscribers, bank statements, and other statutory documents, to establish the genuineness of the transactions. The CIT(A) referenced the Supreme Court judgment in Lovely Exports, which supports the view that if the assessee provides evidence of the identity and creditworthiness of the investors, the burden shifts to the AO. Key evidence and findings: The assessee submitted confirmations, bank statements, and other relevant documents. The CIT(A) found that the AO did not provide any contrary evidence to dispute these documents. Application of law to facts: The Tribunal agreed with the CIT(A) that the assessee had discharged its burden of proof, and the AO failed to bring any substantive evidence to the contrary. Treatment of competing arguments: The Revenue argued that the transactions were not genuine, relying on third-party statements. However, these statements were not substantiated with direct evidence against the assessee. Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the addition made under Section 68, as the assessee had adequately explained the source of the share application money. 2. Treatment of Commission Expenses as Unexplained Expenditure Relevant legal framework and precedents: Section 69C of the Income Tax Act deals with unexplained expenditure. The AO must prove that the expenditure was incurred and remains unexplained. Court's interpretation and reasoning: The CIT(A) found that the AO's calculation of commission expenses was speculative and not backed by evidence. Key evidence and findings: The CIT(A) noted the absence of any direct evidence linking the assessee to the alleged commission payments. Application of law to facts: The Tribunal agreed with the CIT(A) that the AO's reliance on assumptions without evidence was insufficient to justify the addition under Section 69C. Treatment of competing arguments: The Revenue did not provide substantive evidence to support the claim of unexplained expenditure. Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the addition made under Section 69C. 3. Procedural Rights and Natural Justice Relevant legal framework and precedents: The principles of natural justice require that the assessee be given an opportunity to examine and cross-examine evidence and witnesses used against them. Court's interpretation and reasoning: The CIT(A) observed that the AO relied on third-party statements without providing the assessee an opportunity for cross-examination, violating principles of natural justice. Key evidence and findings: The Tribunal noted that the AO did not furnish the statements or allow cross-examination, which undermined the reliability of the evidence against the assessee. Application of law to facts: The Tribunal agreed with the CIT(A) that the lack of opportunity for cross-examination rendered the AO's reliance on these statements procedurally flawed. Treatment of competing arguments: The Revenue did not adequately address the procedural deficiencies highlighted by the CIT(A). Conclusions: The Tribunal affirmed the CIT(A)'s findings on procedural grounds, reinforcing the importance of adhering to principles of natural justice. SIGNIFICANT HOLDINGS The Tribunal's decision established several core principles:
Final determinations on each issue: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the additions made by the AO under Sections 68 and 69C.
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