2021 (7) TMI 583 - AT - Income Tax

Tribunal overturns CIT(A), reinstates AO's additions under Income Tax Act Section 68

DCIT, Circle : 10 (1), New Delhi. Versus M/s. Gogoal Hydro Pvt. Ltd.

DCIT, Circle : 10 (1), New Delhi. Versus M/s. Gogoal Hydro Pvt. Ltd. - TMI Issues Involved:1. Deletion of addition made under Section 68 of the Income Tax Act for Rs. 2,50,00,000/-.2. Treatment of purchase of computers as revenue expenditure.3. Validity of surrender made by the Authorized Representative (AR) during assessment proceedings.Issue-wise Detailed Analysis:1. Deletion of Addition under Section 68 of the Income Tax Act:The Revenue challenged the deletion of an addition of Rs. 2,50,00,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act. The AO had added this amount to the assessee's income, doubting the identity, creditworthiness, and genuineness of the share applicants. The assessee provided details such as the Registrar of Companies records, PAN, bank statements, and income tax returns of the share applicant companies to establish these factors. Despite this, the AO found the evidence insufficient and noted that the companies did not exist at the provided addresses, and the summons issued to these companies were returned undelivered. The AO also highlighted that the share application money was forfeited in the subsequent year, raising further suspicion.The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, stating that the assessee had discharged its initial onus by providing necessary documents and that the AO failed to carry out further investigations. The CIT(A) held that the burden shifted to the AO to disprove the assessee's claims, which was not done adequately.However, the Tribunal reversed the CIT(A)'s decision, emphasizing that the AO had conducted thorough investigations, including issuing summons and deputing an Inspector to verify the companies' existence. The Tribunal noted that the AO's findings were consistent with the principles laid down by the Supreme Court in the case of NRA Iron & Steel Ltd. and the Delhi High Court in NDR Promoters (P.) Ltd., which required conclusive evidence of the share applicants' identity, creditworthiness, and transaction genuineness. The Tribunal concluded that the CIT(A) had erred in deleting the addition without adequately addressing the AO's findings and restored the AO's order, thereby allowing the Revenue's appeal on this ground.2. Treatment of Purchase of Computers as Revenue Expenditure:The Revenue contended that the CIT(A) erred in treating the purchase of computers and parts amounting to Rs. 1,85,592/- as revenue expenditure. The AO had classified this expenditure as capital in nature, arguing that the purchase of new computers should not be allowable as revenue expenditure.The CIT(A) had deleted this addition, but the Tribunal did not specifically address this issue in the detailed judgment provided. Therefore, it is presumed that the Tribunal's decision to allow the Revenue's appeal implicitly includes agreement with the AO's original classification of the expenditure as capital in nature.3. Validity of Surrender by Authorized Representative:The Revenue also challenged the CIT(A)'s decision to delete the addition made by the AO based on the surrender of income by the assessee's Authorized Representative (AR) during the assessment proceedings. The AO had made the addition based on detailed inquiries and not solely on the AR's surrender.The CIT(A) held that a lawyer or AR must be specifically authorized to settle and compromise a claim, and merely on the basis of employment, they do not have the authority to bind their client to a compromise or settlement. The CIT(A) concluded that the addition could not be made based on the AR's surrender unless it was agreed upon by the company's director.The Tribunal, however, found that the AO had made the addition based on substantial evidence and multiple opportunities given to the assessee to produce the directors of the share applicant companies, which the assessee failed to do. The Tribunal agreed with the Revenue that the CIT(A) had overlooked the AO's detailed findings and the failure of the assessee to substantiate the genuineness of the transactions. Consequently, the Tribunal restored the AO's order, allowing the Revenue's appeal on this ground as well.Conclusion:The Tribunal allowed the appeal filed by the Revenue, reversing the CIT(A)'s order and restoring the AO's additions under Section 68 of the Income Tax Act. The Tribunal emphasized the need for conclusive evidence to establish the identity, creditworthiness, and genuineness of share applicants and upheld the AO's thorough investigation and findings.