Tribunal allows appeal, removes additions of Rs. 25,40,000/- & Rs. 1,15,20,000/- by AO and CIT(A)

The tribunal allowed the appeal of the assessee, deleting the additions of Rs. 25,40,000/- and Rs. 1,15,20,000/- made by the AO and confirmed by the CIT(A).

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Issues Involved:
1. Sustenance of addition of Rs. 25,40,000/-.
2. Addition made on account of credit in share application amounting to Rs. 1,15,20,000/-.

Issue 1: Sustenance of Addition of Rs. 25,40,000/-

The first issue pertains to the addition of Rs. 25,40,000/-. A search and seizure operation under Section 132(1) was conducted on 26/04/2006 on a passenger of Sahara Air Lines, who was found with Rs. 25.37 lakh, of which Rs. 25 lakh was seized. The individual claimed the cash belonged to M/s K. M. Sugar Mills Ltd. The assessee submitted that the cash was recorded in their books and was meant for business purposes. However, the Assessing Officer (AO) was not satisfied with the explanation, citing inconsistencies in the vouchers and the lack of details regarding the payment of freight. The AO treated the vouchers as questionable documents and made an addition of Rs. 25,40,000/-.

Upon appeal, the CIT(A) confirmed the addition. However, the tribunal noted that the assessee had submitted vouchers signed by the individual carrying the cash, indicating the cash was for making a draft for sugar trading at Latur. The tribunal found that the cash was duly recorded in the books and there was no evidence of the cash being unaccounted for. The tribunal observed contradictions in the AO's findings regarding the payment of freight and noted that the cash was available with the assessee and was recorded in their books. The tribunal concluded that the nature and source of the money were duly explained and it could not be regarded as unexplained. Thus, the addition of Rs. 25,40,000/- was deleted, setting aside the order of the CIT(A).

Issue 2: Addition on Account of Credit in Share Application Amounting to Rs. 1,15,20,000/-

The second issue involves the addition of Rs. 1,15,20,000/- as unexplained cash credit under the head 'share application money'. The AO added this amount due to the absence of details. The assessee contended that the AO did not make a specific query regarding the share application money during the assessment proceedings. The assessee provided details of the share application money, including resolutions, applications, and confirmations from the applicant companies, M/s Heritage Commodities Pvt. Ltd. and M/s Millennium Vanijya Pvt. Ltd., along with their financial documents.

The CIT(A) admitted the additional evidence and called for a remand report from the AO. The AO noted discrepancies in the payment methods mentioned in the application forms and the confirmatory letters. The AO also pointed out that the income tax returns of the applicant companies were filed after the assessment was completed. The CIT(A) confronted the assessee with the remand report, and the assessee provided a rejoinder, stating that the AO did not raise any query regarding the share application during the assessment proceedings. The CIT(A) called for another report from the AO, but the notices could not be served due to address issues.

The tribunal examined whether the assessee discharged the onus under Section 68 of the Act. It was noted that both applicant companies were income tax assessees with PAN and had filed their returns, proving their identity. The payments were made through banking channels, and the share application money was ultimately refunded as the shares were not allotted. The tribunal found that the assessee had duly discharged the onus, and the share applicants were not bogus. Thus, the addition of Rs. 1,15,20,000/- was deleted, setting aside the order of the CIT(A).

Conclusion:

In conclusion, the tribunal allowed the appeal of the assessee, deleting the additions of Rs. 25,40,000/- and Rs. 1,15,20,000/- made by the AO and confirmed by the CIT(A).

(Order pronounced in the open court on 31/08/2016)

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