Tribunal grants final opportunity to assessee for share application verification

The Tribunal directed the Assessing Officer (AO) to grant the assessee a final opportunity to substantiate the identity, creditworthiness of share applicants, and genuineness of transactions regarding the addition of Rs. 3 crores as share application money. The Tribunal also instructed the AO to re-decide the interest income addition issue of Rs. 2,83,160/- based on evidence. The penalty of Rs. 98,34,200/- under section 271(1)(c) was cancelled, but the AO retained the option to initiate fresh penalty proceedings. The appeals were partly allowed, and the decision was rendered on 25.11.2019.

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Issues Involved:
1. Sustaining the addition of Rs. 3,00,00,000/- credited as share application money under section 68 of the IT Act.
2. Sustaining the addition of Rs. 2,83,160/- alleged to be interest income for the year.
3. Confirming the penalty of Rs. 98,34,200/- levied under section 271(1)(c) of the IT Act.

Issue-wise Detailed Analysis:

1. Sustaining the addition of Rs. 3,00,00,000/- credited as share application money under section 68 of the IT Act:

The assessee, a private limited company engaged in manufacturing craft paper, filed its return of income declaring a total income of Rs. 17,07,650/-. During assessment, the Assessing Officer (AO) noted an increase in share capital and share premium aggregating to Rs. 3 crores. The assessee issued 3 lakh shares at a premium of Rs. 90/- per share. The AO asked the assessee to prove the identity, genuineness, and creditworthiness of the shareholders. Despite submitting photocopies of share application forms and other documents, the AO found non-compliance and added Rs. 3 crores to the total income under section 68.

The CIT(A) admitted additional evidence and called for a remand report, ultimately confirming the AO's addition. The assessee argued that it had discharged its onus by producing relevant documents and that the low income of the investor companies could not be a ground to disbelieve the investments. The assessee cited several cases, including PCIT vs. Goodview Trading (P) Ltd. and ITO vs. Computer Home Information Plus Pvt. Ltd., to support its position.

The Tribunal found that subsequent decisions by the Hon'ble Supreme Court in NRA Iron & Steel Pvt. Ltd. and the Hon'ble Delhi High Court in NDR Promoters Pvt. Ltd. were not considered. The Tribunal restored the issue to the AO to grant one final opportunity to the assessee to substantiate the identity, creditworthiness of the share applicants, and the genuineness of the transactions. The AO was directed to decide the issue afresh, keeping in mind the apex court's and Delhi High Court's decisions.

2. Sustaining the addition of Rs. 2,83,160/- alleged to be interest income for the year:

The AO observed an interest income discrepancy, where the ITS details showed Rs. 3,03,754/- while the Profit & Loss Account declared Rs. 20,594/-. The AO added Rs. 2,83,160/- to the income, which was upheld by the CIT(A) due to the assessee's failure to substantiate the claim with evidence.

The assessee contended that the interest income was declared on a receipt basis and offered to tax in the subsequent year. The Tribunal found merit in the argument that income cannot be taxed twice. However, due to a lack of evidence, the Tribunal restored the issue to the AO, directing the assessee to substantiate its claim and the AO to decide the issue as per fact and law.

3. Confirming the penalty of Rs. 98,34,200/- levied under section 271(1)(c) of the IT Act:

The penalty appeal was linked to the quantum appeal, which was restored to the AO for fresh adjudication. Consequently, the penalty levied by the AO and upheld by the CIT(A) was cancelled. However, the AO was given the liberty to initiate fresh penalty proceedings under section 271(1)(c) after completing the assessment.

Conclusion:

The appeal in ITA No.3456/Del/2017 was partly allowed for statistical purposes, and ITA No.7644/Del/2018 was allowed. The decision was pronounced in the open court on 25.11.2019.

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