2019 (1) TMI 16 - AT - Income Tax

Tribunal grants relief to assessee on share application money addition under IT Act

The Tribunal allowed the assessee's appeal concerning the addition of Rs. 85,23,000/- under Section 68 of the Income Tax Act, 1961. The Tribunal ... Admission of additional evidence under Rule 29 of the ITAT Rules - cash credit / share application money assessed under section 68 - onus of proof on assessee to establish identity and genuineness of creditor - limited application of sections 68/69 in respect of remittances from non-residents - money brought into India by non-resident through banking channels not taxable per seAdmission of additional evidence under Rule 29 of the ITAT Rules - Admissibility of bank statements and related documents filed by the assessee as additional evidence under Rule 29 of the ITAT Rules - HELD THAT: - The assessee applied to admit bank account statements of the non-resident subscriber to corroborate the share application money. The Revenue opposed the application. The Tribunal considered the nature of the evidence (supporting and supplementary), the fact that the subscriber was abroad at earlier proceedings and the evidence was material to the root of the controversy. In the interest of equity and justice and since the evidence was vital for adjudication, the Tribunal allowed the application and directed that the additional evidence be considered while deciding the appeal. [Paras 4]Additional evidence admitted and to be considered by the Tribunal.Cash credit / share application money assessed under section 68 - onus of proof on assessee to establish identity and genuineness of creditor - limited application of sections 68/69 in respect of remittances from non-residents - money brought into India by non-resident through banking channels not taxable per se - Validity of addition of share application money to the assessee's income under section 68 for AY 2013-14 - HELD THAT: - The assessing officer had added the share application money to the assessee's income on the ground that the creditworthiness of the subscriber was not proved. The CIT(A) confirmed that addition by an ex parte order. On appeal, having considered the documents (passport and driving licence establishing identity, confirmation letter, bank statements showing transfer through banking channels, the assessee company's bank records and the financial statements of the subscriber's company), the Tribunal observed that money brought into India by non-residents for investment through banking channels cannot be treated as taxable in India per se. Relying on the materials filed and applicable decisions and the CBDT circular, the Tribunal held that the assessee had discharged the primary onus in respect of the share application money and that sections 68/69 have limited application where the origin of funds is outside India. Applying these principles to the facts, the Tribunal found that the addition was not sustainable and allowed the ground. [Paras 5, 6]Addition under section 68 of Rs. 85,23,000/- deleted and Ground No. 2 allowed.Final Conclusion: The Tribunal admitted the additional bank-account evidence under Rule 29 and, on consideration of that material together with identity and bank transfer evidence, held that the share application money from a non-resident brought in through banking channels was not liable to be added to the assessee's income under section 68 for AY 2013-14; the appeal was partly allowed. Issues Involved:1. Ex-parte decision by CIT(A) without notice to the assessee.2. Addition of Rs. 85,23,000/- under Section 68 of the Income Tax Act, 1961.3. Invocation of Section 115BBE of the Income Tax Act, 1961.4. Non-allowance of set-off of carried forward losses against the income determined for the year.Detailed Analysis:1. Ex-parte Decision by CIT(A) Without Notice to the Assessee:The assessee raised a ground that the CIT(A) erred in deciding the appeal ex-parte without serving notice to the assessee. However, during the hearing, the assessee's representative did not press this ground, leading to its dismissal.2. Addition of Rs. 85,23,000/- Under Section 68 of the Income Tax Act, 1961:The primary issue revolves around the addition of Rs. 85,23,000/- as unexplained cash credits under Section 68. The assessee, a Private Limited Company engaged in the liquor business, declared a loss for the Assessment Year 2013-14. The Assessing Officer (AO) added Rs. 85,23,000/- to the income, citing the inability to prove the creditworthiness and genuineness of the share application money received from Shri Jagjit Singh Gabha, a British citizen.In the first appeal, the CIT(A) confirmed the AO's addition, noting the assessee's failure to provide supporting evidence. However, the assessee later presented additional evidence, including bank statements and financial documents of Shri Jagjit Singh Gabha, to substantiate the share application money's genuineness.The Tribunal considered the additional evidence, emphasizing the importance of equity and justice. It noted that the money was brought into India through banking channels, and various judicial precedents supported the assessee's position. The Tribunal referred to several case laws, including CIT vs. Bhaval Synthetics and CIT vs. Lovely Exports, which established that share application money from non-residents, when proven genuine, should not be added as unexplained income. Consequently, the Tribunal allowed the assessee's ground, deleting the addition of Rs. 85,23,000/-.3. Invocation of Section 115BBE of the Income Tax Act, 1961:The assessee's representative mentioned that the grounds related to Section 115BBE and the set-off of carried forward losses were consequential and did not require separate adjudication. Hence, the Tribunal did not address these grounds substantively.4. Non-allowance of Set-off of Carried Forward Losses Against the Income Determined for the Year:Similar to the invocation of Section 115BBE, the issue of non-allowance of set-off of carried forward losses was deemed consequential and not separately adjudicated by the Tribunal.Conclusion:The Tribunal, after considering the additional evidence and relevant judicial precedents, allowed the assessee's appeal regarding the addition of Rs. 85,23,000/- under Section 68. The other grounds related to procedural aspects and were either dismissed as not pressed or deemed consequential, requiring no separate adjudication. The appeal was partly allowed, providing relief to the assessee.