2014 (8) TMI 519 - AT - Income Tax

ITAT affirms CIT(A)'s decision to delete Rs. 4.03 crore addition, citing substantial evidence.

The ITAT upheld the CIT(A)'s decision to delete the addition of Rs. 4.03 crores, finding the assessee had provided substantial evidence to establish the ... Admission of additional evidence – assessment u/s 153C - Unexplained credit - Held that:- CIT(A) has dealt with the issue in detail and after discussing the case of the assessee for admission of the additional evidence has allowed the application of the assessee - there was sufficient reason for the admission of the additional evidence by the CIT(A) as the AO had issued show-cause notice in respect of the issue of share capital for the first time on 14.12.2011 and has given just two days to the assessee to give detailed submissions/evidence to prove the genuineness of the transaction, creditworthiness and identity of the shareholder who had given ₹ 4.03 crores - the time of two days given to the assessee was not sufficient and the documents filed before the CIT(A) were in the nature of supporting evidence - CIT(A) has rightly allowed the required admission of additional evidence by the assessee before him after affording opportunity to the AO - there is no any violation of Rule 46A of the Income-tax Rules, 1962 – Decided against Revenue. Unexplained credit – Share capital issued – Identity and creditworthiness of shareholders – Held that:- CIT(A) was rightly of the view that in respect of all the six shareholders, the assessee has been able to furnish on record substantial evidences to establish the identity, creditworthiness of the shareholders and genuineness of the transactions – CIT(A) rightly relied upon CIT vs. Orissa Corporation [1986 (3) TMI 3 - SUPREME Court] - the assessee has provided evidence in the form of PAN, ROC details, copy of ITR filed and copy of confirmation, explained source of sources also and even in the post search inquiries, the shareholders have confirmed the investment before the ADIT – thus, CIT(A) has passed a comprehensive and reasoned order on the issue after examining evidence relating to each of the share applicant companies to arrive at a conclusion that the assessee was able to establish the identity, creditworthiness and genuineness of the transaction – Decided against Revenue. Issues Involved:1. Deletion of the addition of Rs. 4.03 crores made by the Assessing Officer on account of unexplained credit.2. Admission of additional evidence by the CIT(Appeals).Issue-wise Detailed Analysis:1. Deletion of the Addition of Rs. 4.03 Crores:The revenue challenged the CIT(Appeals) for deleting the addition of Rs. 4.03 crores made by the Assessing Officer (AO) under Section 68 of the Income-tax Act, 1961. The AO had concluded that the share capital issued to certain entities was bogus, representing the assessee's own money, as these entities were showing negligible profit and were allegedly engaged in providing accommodation entries.During the assessment proceedings, the AO noted that the assessee had issued share capital to several entities, including Roop Yarns Pvt. Ltd., Scholars Steels Pvt. Ltd., Royal Traders Ltd., Innotech Distributors Pvt. Ltd., Hunt Commercial Ltd., and BMC Polymers Pvt. Ltd., totaling Rs. 4.03 crores. The AO conducted inquiries and found that these entities were not engaged in real business activities, leading to the addition of the entire amount as unexplained credit.The CIT(Appeals), however, deleted the addition after examining the evidence provided by the assessee, which included share application forms, bank details, PAN, ITRs, and bank statements of the shareholder companies. The CIT(Appeals) concluded that the assessee had established the identity, creditworthiness, and genuineness of the transactions.The ITAT upheld the CIT(Appeals) decision, agreeing that the assessee had provided substantial evidence to support the genuineness of the transactions and the identity and creditworthiness of the shareholders. The ITAT also noted that the AO had not provided any specific adverse findings against the shareholder companies and had relied on general observations.2. Admission of Additional Evidence by the CIT(Appeals):The revenue also questioned the admission of additional evidence by the CIT(Appeals). The AO had issued a show-cause notice regarding the share capital issue for the first time on 14.12.2011, giving the assessee only two days to provide detailed submissions and evidence. The assessee was unable to furnish all necessary documents within this short period.The CIT(Appeals) admitted additional evidence, including the balance sheet of shareholders, investment declarations, assessment orders of shareholder companies under Section 143(3), certificates of incorporation, and bank account details of the shareholders and their sources of funds. The CIT(Appeals) found that the time given by the AO was too short and that the additional evidence was necessary to support the genuineness of the transactions.The ITAT concurred with the CIT(Appeals), stating that there was sufficient reason for admitting the additional evidence. The ITAT found that the documents were in the nature of supporting evidence and that the CIT(Appeals) had rightly allowed their admission after affording the AO an opportunity to respond. The ITAT concluded that there was no violation of Rule 46A of the Income-tax Rules, 1962, and rejected the revenue's ground on this issue.Conclusion:The ITAT dismissed the revenue's appeal, upholding the CIT(Appeals) decision to delete the addition of Rs. 4.03 crores and to admit additional evidence. The ITAT found that the assessee had provided sufficient evidence to establish the identity, creditworthiness, and genuineness of the transactions and that the CIT(Appeals) had acted correctly in admitting the additional evidence. The cross-objection raised by the assessee regarding the validity of the notice under Section 153C was deemed academic and disposed of as infructuous.