2018 (4) TMI 1417 - AT - Income Tax

Tribunal directs re-examination of documents, emphasizes balance sheet importance

The Tribunal allowed the appeal for statistical purposes, directing the AO to re-examine the documents and decide the issue in light of the Tribunal's ... Additions made u/s 68 on account of share capital - Held that:- We find the Assessing Officer did not issue summons u/s 131 despite clearly being asked by the company at the very initial stage and only notices u/s 133(6) were issued to the investing companies which were complied by some of these companies. It is submitted by the assessee that mere non-production of the director could not be a ground for making addition when all the evidences were filed and if there is no allegation/adverse material brought on record contrary to evidences filed. Admittedly the AO has not conducted the preliminarily enquiry such as verification of the PAN Number from the data bank of the Department and not verified from the website of the Ministry of Corporate Affairs which he should have done in this case at the initial stage and since the CIT(A) has wrongly interpreted the financials of the investor companies, therefore, considering the totality of the facts of the case and in the interest of justice, we restore the issue to the file of the AO with a direction to verify the various documents filed before him and decide the issue in the light of our above observation. While doing so, he should keep in mind the decision of the Hon’ble Delhi High Court in the case of Victor Electrode (2010 (5) TMI 62 - DELHI HIGH COURT ). - Appeal filed by the assessee for statistical purposes Issues Involved:1. Whether the CIT(A) was justified in upholding the additions made under section 68 of the Income Tax Act on account of share capital from 13 shareholders amounting to Rs. 2,77,00,000 as unexplained.Issue-wise Detailed Analysis:1. Background and Initial Observations:The assessee, a construction company, filed its return for the assessment year 2010-11 declaring an income of Rs. 18,96,750. During the assessment, the Assessing Officer (AO) observed that the assessee received share capital of Rs. 3,10,00,000 and share premium of Rs. 2,79,00,000 from 15 investors. The AO issued notices under section 133(6) to verify the genuineness of these transactions but received incomplete responses, leading to the conclusion that the identity, genuineness, and creditworthiness of the investors were not established. Consequently, the AO made an addition of Rs. 3,10,00,000 under section 68.2. CIT(A) Proceedings:The assessee presented additional evidence before the CIT(A), who admitted these and called for a remand report. The CIT(A) deleted the additions for Express DSA Services Pvt. Ltd. and S.K. Fashions but sustained the addition for the remaining 13 companies, analyzing each company’s investment and concluding that the identity and creditworthiness were not established.3. Tribunal’s Analysis:The Tribunal categorized the companies into two groups: those whose directors appeared before the AO and those whose directors did not appear but affidavits were filed.4. Companies Whose Directors Appeared:- Pride Real Tech Pvt. Ltd.: The Tribunal found that the company had sufficient funds and the director's statement confirmed the investment. The addition of Rs. 13,00,000 was deleted.- Truth Tradex Pvt. Ltd.: Despite the director's inability to substantiate the source, the company had adequate reserves. The addition of Rs. 7,00,000 was deleted.- Fabrika Industries: The company had sufficient funds and the director confirmed the investment. The addition of Rs. 30,00,000 was deleted.- S.S. Finvest India Pvt. Ltd.: The company had adequate capital and reserves. The addition of Rs. 25,00,000 was deleted.- Logitura Solutions Pvt. Ltd.: The company had sufficient reserves despite showing meager income. The addition of Rs. 25,00,000 was deleted.5. Companies Whose Directors Did Not Appear:The Tribunal noted that the assessee had filed various documents to establish the identity and creditworthiness of these companies, including affidavits, which were not proven false. The AO failed to issue summons under section 131 and did not verify the PAN numbers or details from the Ministry of Corporate Affairs. The Tribunal restored the issue to the AO for re-verification of the documents and to decide the matter afresh, considering the principles laid down in the case of Victor Electrode.Conclusion:The Tribunal allowed the appeal for statistical purposes, directing the AO to re-examine the documents and decide the issue in light of the Tribunal’s observations. The Tribunal emphasized that mere non-appearance of directors or meager income cannot be grounds to disbelieve the investments if sufficient capital and reserves are shown in the balance sheets. The decision of the CIT(A) was partially upheld and partially set aside for fresh consideration.