2019 (6) TMI 1480 - AT - Income Tax

Tribunal overturns CIT(A) decision on Income Tax Act Section 68.

The Tribunal set aside the CIT(A)'s deletion of an addition under Section 68 of the Income Tax Act regarding Share Application Money and Share Premium, ... Addition u/s 68 - investment received as Share Application Money and Share Premium thereto - CIT- A deleted the addition - HELD THAT:- For the year under consideration, we notice that the two companies named at serial no. (E) had not even filed their return of income and in respect of the companies, who have filed their return of income, then the investment in shares is not being reflected in the balance sheet and the total application of fund is below / equal to the investment made in the assessee company. It was categorically pointed that Mr. Pradeep Prajapati, the director of the companies listed at para –G had admitted that he knew nothing about the business activities of the said companies in which he was director. All the above factual findings have not been rebutted or controverted by Ld. CIT(A) while deciding the appeal in favour of assessee and deleting the additions. Even Ld. CIT(A) had not adjudicated or given any findings with regard to credibility of the investing company and genuineness of transactions. Whereas in the case of PCIT Vrs. NRA Iron & Steel Pvt Ltd. [2019 (3) TMI 323 - SUPREME COURT] had dealt with somewhat similar situation and concluded against the assessee as the creditworthiness of the investors and genuineness of the transactions cannot be proved. Hon’ble Apex Court in the case of Kapurchand Shrimal Vrs. CIT [1981 (8) TMI 2 - SUPREME COURT] has held that the duty of the Tribunal does not end with making a declaration that the assessments are illegal and it is duty bound to issue further directions. The appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh unless forbidden from doing so by the statute and the statute does not say that such a direction cannot be issued by the appellate authority in a case of this nature. Keeping in view the interest of justice, we set aside the order of Ld. CIT(A) and remit the matter back to the file of Ld. CIT(A) with a direction to pass afresh order and to give clear cut findings on all the three important ingredients which are enumerate above - Decided in favour of revenue for statistical purposes,. Issues Involved:1. Deletion of addition under Section 68 of the Income Tax Act regarding Share Application Money and Share Premium.2. Evaluation of the identity, creditworthiness, and genuineness of transactions by the investing companies.Detailed Analysis:1. Deletion of Addition under Section 68 of the Income Tax Act Regarding Share Application Money and Share Premium:The appeal concerns the deletion of an addition of Rs. 2.25 crores made under Section 68 of the Income Tax Act by the Assessing Officer (AO). The AO had determined the total income at Rs. 1,49,92,950/- after scrutiny and found the companies investing in the assessee to be bogus, based on detailed investigations. The AO noted several discrepancies, including the non-filing of returns by some companies and the lack of genuine transactions despite payments being made via account payee cheques.The Commissioner of Income Tax (Appeals) [CIT(A)], however, deleted the addition, stating that the identity of the companies was established and there were no cash deposits before the investments. CIT(A) relied on precedents such as the case of Lovely Exports (P) Ltd., where it was held that share application money from identified bogus shareholders cannot be regarded as undisclosed income of the appellant company.2. Evaluation of the Identity, Creditworthiness, and Genuineness of Transactions by the Investing Companies:The Tribunal observed that the CIT(A) did not adequately address the creditworthiness and genuineness of the transactions. The AO's findings included that the notices issued to the companies were returned unserved, and some companies had not filed returns, making it impossible to verify the transactions' legitimacy. The AO found that the companies' directors were unaware of their business activities, further questioning the transactions' authenticity.The Tribunal highlighted that all three elements—identity, creditworthiness, and genuineness—must be established. The CIT(A) had only confirmed the identity of the companies without addressing the other two critical aspects. The Tribunal referenced the Supreme Court's decision in PCIT vs. NRA Iron & Steel Pvt Ltd., emphasizing that the creditworthiness of investors and genuineness of transactions are crucial.Conclusion and Directions:The Tribunal set aside the order of the CIT(A) and remitted the matter back for fresh adjudication, directing the CIT(A) to provide clear findings on all three aspects: identity, creditworthiness, and genuineness. The Tribunal emphasized the need for a thorough inquiry and proper documentation to support the findings. The decision to remit the case should not be construed as an opinion on the merits of the dispute, which the CIT(A) must decide independently.The appeal by the revenue was partly allowed for statistical purposes, and the cross-objection filed by the assessee was also allowed for statistical purposes, maintaining judicial consistency.Order Pronounced:The order was pronounced in the open court on 27th June 2019.