2018 (5) TMI 1085 - AT - Income Tax

Tribunal partially allows appeal under Section 68 of Income Tax Act, remands matter for corporate shareholders verification.

M/s. Niyati Foods Pvt Ltd. Versus Vs. ACIT, Circle 1 (1), Bhubaneswar

M/s. Niyati Foods Pvt Ltd. Versus Vs. ACIT, Circle 1 (1), Bhubaneswar - TMI Issues Involved:1. Addition of Rs. 66,80,000/- under Section 68 of the Income Tax Act on account of unexplained share application money.Issue-wise Detailed Analysis:1. Addition of Rs. 66,80,000/- under Section 68 of the Income Tax Act on account of unexplained share application money:The primary issue in this case revolves around the addition of Rs. 66,80,000/- under Section 68 of the Income Tax Act, 1961, due to unexplained share application money. The Assessing Officer (AO) noted that the assessee claimed to have received share application money from six entities, including two individuals and four companies. Summons were issued to these shareholders, but there was no compliance. Consequently, the AO concluded that the genuineness of the transactions, identity, and creditworthiness of the shareholders were not proven, leading to the addition of Rs. 66,08,000/- as unexplained share application money.On appeal, the assessee argued that the shareholders could not appear due to insufficient time provided during the assessment proceedings. The assessee provided details of the companies' substantial assets and liabilities, asserting their creditworthiness. However, the CIT(A) called for a remand report, and the AO reiterated that the individual shareholders failed to explain the source of their investments with documentary evidence. Further, the AO's investigation revealed that the four company shareholders were shell companies, and their addresses were untraceable. The CIT(A) confirmed the addition, stating that the assessee failed to establish the creditworthiness and genuineness of the transactions.Before the Tribunal, the assessee contended that the identity of the individual shareholders, who were directors of the company, was established as they were assessed to income tax and had provided their PAN numbers. The Tribunal referred to the decision of the Hon’ble Delhi High Court in the case of CIT vs. Sophia Finance Ltd., which held that if the shareholders exist, no further inquiry is needed. Additionally, the Tribunal cited the Hon’ble Supreme Court's decision in CIT vs. Lovely Exports Pvt Ltd., which stated that if the share application money is received from identifiable shareholders, the department can proceed to reopen the individual assessments.The Tribunal found that the identity of the individual shareholders was established, and thus, deleted the addition of Rs. 26,08,000/- received from them. However, regarding the Rs. 40,00,000/- received from the four companies, the Tribunal noted contradictions in the findings of the AO and CIT(A). The AO admitted that the directors of the companies requested more time to appear, indicating their identity was established. The CIT(A) claimed that the companies were untraceable based on an investigation, but this was not confronted with the assessee. The Tribunal decided to set aside the orders of the lower authorities and remand the matter back to the AO for further verification of the corporate shareholders, ensuring a reasonable opportunity for the assessee to present their case.In conclusion, the Tribunal partly allowed the appeal, deleting the addition related to individual shareholders and remanding the matter concerning corporate shareholders for further investigation.