2017 (3) TMI 1047 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions on unexplained money, loans, and employee contributions

The Tribunal dismissed the AO's appeal, upholding the CIT(A)'s decisions to delete additions under section 68 for unexplained share application money and ... Addition u/s 68 - share application money and unsecured loan received from directors as unexplained - Held that:- When the depositors are regular tax payers and the advances made by such depositors as also share application monies paid by such shareholders are duly accepted in their personal assessments, there cannot be any occasion to hold that these amounts are unexplained in the hands of the company. The credit worthiness or identity cannot be an issue in such a situation. The fact that there are doubts about sources of these monies in the hands of the depositor or shareholder cannot be an issue either. In any event, when credit worthiness is accepted for a part of the amount, as the CIT(A) rightly holds, credit worthiness cannot be declined for another part of the same amount- and that too without any cogent material at all. In the case of a director, the identity also stands accepted anyway. In the light of these discussions, as also bearing in mind entirety of the case, approve the well reasoned conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. Additions made on account of disallowance of employees’ contribution to PF and ESI under section 36(1)(va) - CIT-A deleting the additions -Held that:- When it was pointed out to the learned DR that the CIT(A) has given a categorical finding that the amounts well within the grace period, and there is nothing to controvert the same, learned DR did not say anything beyond placing reliance on the order of the Assessing Officer. We, therefore, see no reasons to disturb the conclusions arrived at by the CIT(A) and to interfere in the matter. Issues Involved:1. Deletion of additions made on account of unexplained share application money and unsecured loans under section 68 of the Income Tax Act, 1961.2. Deletion of additions made on account of disallowance of employees' contributions to PF and ESI under section 36(1)(va) of the Act.Issue-Wise Detailed Analysis:1. Deletion of Additions Made on Account of Unexplained Share Application Money and Unsecured Loans Under Section 68:The Assessing Officer (AO) noted that the assessee company's paid-up share capital increased from Rs. 15,00,000 to Rs. 65,00,000 and accepted unsecured loans amounting to Rs. 1,05,52,529. The AO treated Rs. 23,43,537 of share application money and Rs. 12,38,000 of unsecured loans received from directors as unexplained credits under section 68. The AO's investigation revealed that the directors, Shri Nailesh Mashru and Shri Mehul Kakkad, deposited amounts through various modes, including cash and cheques, without satisfactorily explaining the sources of these funds.The CIT(A) deleted these additions, noting that both directors were long-term taxpayers with Permanent Account Numbers (PAN) and had confirmed the deposits. The CIT(A) emphasized that the responsibility of the assessee ends once the depositor confirms the deposit and is a regular taxpayer. The CIT(A) criticized the AO for accepting part of the deposits while rejecting others without substantial evidence and concluded that the onus to explain the source of the deposits lies with the depositors, not the assessee.The Tribunal upheld the CIT(A)'s decision, agreeing that the amounts were accepted in the personal assessments of the directors. The Tribunal stated that when depositors are regular taxpayers, their advances and share application monies cannot be deemed unexplained in the company's hands. The Tribunal found no cogent material to dispute the creditworthiness of the depositors and affirmed the CIT(A)'s well-reasoned conclusions.2. Deletion of Additions Made on Account of Disallowance of Employees' Contributions to PF and ESI Under Section 36(1)(va):The AO disallowed employees' contributions to PF and ESI, asserting they were not paid within the stipulated time under section 36(1)(va). However, the CIT(A) found that the amounts were paid within the grace period allowed by the respective statutes.The Tribunal confirmed the CIT(A)'s findings, noting that the learned Departmental Representative (DR) could not provide any evidence to contradict the CIT(A)'s categorical finding. The Tribunal saw no reason to disturb the CIT(A)'s conclusions and upheld the deletion of the disallowance.Conclusion:The Tribunal dismissed the appeal filed by the AO, affirming the CIT(A)'s decisions to delete the additions made on account of unexplained share application money and unsecured loans under section 68, and the disallowance of employees' contributions to PF and ESI under section 36(1)(va). The Tribunal's judgment emphasized the importance of the depositors' tax compliance and the proper discharge of the assessee's onus in confirming the deposits.