2020 (12) TMI 339 - AT - Income Tax

Tribunal directs deletion of Section 68 additions, partly allows assessee's appeals

Rich Paints Ltd. Versus ITO-4 (2), Baroda

Rich Paints Ltd. Versus ITO-4 (2), Baroda - TMI Issues Involved:1. Validity of reopening assessment proceedings under Section 147 of the Income Tax Act.2. Confirmation of additions under Section 68 of the Income Tax Act towards share capital.3. Examination of whether the share capital increase represents unexplained cash credit.Detailed Analysis:1. Validity of Reopening Assessment Proceedings under Section 147:The assessee initially challenged the reopening of assessment proceedings under Section 147 of the Income Tax Act, claiming the proceedings were 'bad in law and without jurisdiction.' However, during the appellate proceedings, the assessee's representative chose not to press this ground. Consequently, the tribunal dismissed this issue as not pressed.2. Confirmation of Additions under Section 68:The primary contention was whether the additions made by the Assessing Officer (AO) under Section 68 of the Income Tax Act towards share capital were justified. The AO treated the sums of Rs. 50,50,000/-, Rs. 11,77,000/-, and Rs. 1,22,34,000/- for the Assessment Years (A.Ys) 1995-96, 1996-97, and 1997-98 respectively, as unexplained cash credits. The AO's decision was based on the assessee's failure to provide satisfactory details regarding the identity, creditworthiness, and genuineness of the transactions, as directed in the set-aside proceedings by the ITAT.3. Examination of Whether the Share Capital Increase Represents Unexplained Cash Credit:The assessee argued that the increase in share capital was a result of manipulated book entries, facilitated by a bank officer, to comply with SEBI guidelines for bringing a public issue. The assessee provided evidence including a report from the bank's personal department and a SEBI report confirming the manipulation.The tribunal noted that despite the assessee's contention and supporting evidence, the AO and the CIT(A) failed to address the claim that no actual cash transactions occurred. The tribunal emphasized that the provisions of Section 68 require an actual cash credit entry, which was not the case here as the entries were merely book manipulations without real cash inflows.The tribunal concluded that since the entries were fictitious and no real transactions occurred, Section 68 could not be applied. It was further noted that the assessee could not comply with the ITAT's directions to prove the identity, creditworthiness, and genuineness of the transactions due to the nature of the manipulated entries. The tribunal invoked the legal principle 'lex non cogit ad impossibilia' (the law does not compel a man to do what he cannot possibly perform) to hold that the assessee should not be penalized for failing to provide details of non-existent transactions.Conclusion:The tribunal set aside the findings of the CIT(A) and directed the AO to delete the additions made under Section 68 for all the assessment years in question. The appeals by the assessee were partly allowed, and the tribunal pronounced the order on 29/10/2020 at Ahmedabad.