2016 (5) TMI 364 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on Rs. 2.16 crores addition under Section 68 of Income Tax Act

Assistant Commissioner of Income Tax, Circle-7, Jaipur Versus M/s Dhanlaxmi Equipment Pvt. Ltd.

Assistant Commissioner of Income Tax, Circle-7, Jaipur Versus M/s Dhanlaxmi Equipment Pvt. Ltd. - TMI Issues Involved:1. Acceptance of inadmissible evidence by CIT(A) to delete the addition under Section 68 of the Income Tax Act.2. Validity of creditors' affidavits and the genuineness of transactions.3. Onus of proof under Section 68 of the Income Tax Act.Detailed Analysis:Issue 1: Acceptance of Inadmissible Evidence by CIT(A)The Revenue challenged the CIT(A)'s decision to accept evidence deemed inadmissible to delete an addition of Rs. 2.16 crores under Section 68 of the Income Tax Act. The Assessing Officer (AO) had scrutinized the assessee's return, focusing on fresh cash capital introduced under various heads, including unsecured loans, reserves, and share application money. The AO received an interim report from ADIT, Kolkata, indicating that nine companies involved in transactions with the assessee were untraceable, and others could not explain the source of funds. The AO added Rs. 2.16 crores to the assessee's income, considering the affidavits and other documents submitted by the assessee as insufficient to discharge the burden of proof under Section 68.Issue 2: Validity of Creditors' Affidavits and Genuineness of TransactionsThe CIT(A) examined the interim report and the AO's assessment, noting that the AO relied heavily on the interim report, which was inconclusive. The CIT(A) emphasized that the assessee had submitted confirmations, affidavits, PAN numbers, copies of returns of income, bank statements, and addresses of creditors. The CIT(A) found that the AO's rejection of these documents was unjustified and that the assessee had discharged its burden by providing substantial evidence. The CIT(A) referred to various judicial precedents, including the cases of Rajshree Synthetic Pvt. Ltd. and Aravali Trading Co., which outline the requirements for proving the identity, capacity, and genuineness of transactions under Section 68.Issue 3: Onus of Proof Under Section 68 of the Income Tax ActThe CIT(A) concluded that the assessee had discharged its onus under Section 68 by submitting comprehensive documentary evidence. The AO's reliance on the interim report, without further investigation or communication with the assessee, was deemed insufficient. The CIT(A) highlighted that the AO had accepted similar evidence for other creditors, indicating inconsistency in the AO's approach. Judicial precedents, including the Supreme Court's decision in the case of Lovely Export Pvt. Ltd., were cited to support the view that once the assessee proves the identity and genuineness of the creditors, the onus shifts to the Revenue. The CIT(A) also noted that the AO did not provide any direct evidence to suggest that the assessee's undisclosed money was routed through these transactions.Conclusion:The Tribunal upheld the CIT(A)'s order, agreeing that the assessee had provided sufficient evidence to discharge its burden under Section 68. The AO's reliance on an inconclusive interim report and the failure to communicate findings to the assessee were found to be against the principles of natural justice. The Tribunal dismissed the Revenue's appeal, affirming the deletion of the Rs. 2.16 crores addition.Order Pronounced:The order was pronounced in the open court on 21/03/2016, dismissing the Revenue's appeal.