2022 (7) TMI 77 - AT - Income Tax

Tribunal remands case, grants assessee opportunity to provide evidence, appeals allowed.

The tribunal set aside the CIT(A)'s order and remanded the issue to the Assessing Officer for further consideration. The assessee was granted another ... Cash credit under section 68 - proof of identity, genuineness and creditworthiness of share applicants - source of the source - onus to explain when Assessing Officer traces money - remand for verification of ROC/struck-off statusCash credit under section 68 - proof of identity, genuineness and creditworthiness of share applicants - source of the source - onus to explain when Assessing Officer traces money - Whether the addition of Rs.55,00,000 as unexplained cash credit under section 68 in respect of share capital received from M/s Lily Enclave Pvt. Ltd. was justified and whether the assessee was obliged to prove source of the source. - HELD THAT: - The Tribunal examined the factual findings of the Assessing Officer and the CIT(A) that M/s Lily Enclave Pvt. Ltd. was a paper/shell company and that the funds introduced as share capital had been routed from M/s Texworld Fashions Pvt. Ltd. and M/s Sita Fabric Mills Pvt. Ltd., earlier treated as unexplained cash credits in their assessments. The Bench reiterated that while for AY 2012-13 the amended proviso to section 68 (effective from AY 2013-14) did not apply, established decisions require that when the Assessing Officer traces the trail of money and specifically queries the source-of-source, the onus shifts to the assessee to offer an explanation and supporting evidence. The Tribunal relied on principles in Sreelekha Banerjee and other precedents to the effect that disclosure must come from the assessee once the department points to an undisclosed source, and observed that the Assessing Officer is entitled to investigate the source of the source. Given that the CIT(A) had proceeded on the basis that the subscriber company was struck off in ROC records during appellate proceedings, but the assessee subsequently asserted that its ROC status is active (a matter not examined below), the Tribunal held that the question of the company's status and the genuineness/creditworthiness trail had not been fully examined by the assessing authority. Considering the combined factual complexity and the duty on the assessee to explain inter connected transactions when asked, the Tribunal found it appropriate not to decide the matter finally but to afford the Assessing Officer an opportunity to verify ROC status and to re-examine the source and creditworthiness in the light of any further evidence the assessee may produce. [Paras 10, 11, 12, 13, 14]The matter is set aside and remitted to the Assessing Officer for fresh consideration to verify the ROC status of M/s Lily Enclave Pvt. Ltd. and to permit the assessee to produce evidence regarding the source and creditworthiness; appeal allowed for statistical purposes.Final Conclusion: The Tribunal remitted the issue to the Assessing Officer to verify the corporate status of the share subscriber and to re-examine the genuineness, creditworthiness and the traced 'source of the source' after affording the assessee an opportunity to produce evidence; the appeal is allowed for statistical purposes. Issues Involved:1. Confirmation of the addition of Rs. 55,00,000/- made by the Assessing Officer under Section 68 of the Income Tax Act, 1961.2. Reliance on the ITAT Ahmedabad decision in the case of Pavankumar M. Sanghvi v/s ITO.3. Examination of the status of the assessee company by the Ministry of Corporate Affairs.Issue-wise Detailed Analysis:1. Confirmation of the Addition of Rs. 55,00,000/-:The assessee, a Private Limited Company engaged in manufacturing and trading of cloth, filed its return for AY 2012-13 declaring a total loss of Rs. 88,28,262/-. During the assessment, it was observed that the company issued shares and introduced share capital amounting to Rs. 55 lakhs from M/s Lily Enclave Pvt. Ltd. The Assessing Officer required the assessee to prove the identity, creditworthiness, and genuineness of the transaction. The assessee provided the income tax return of M/s Lily Enclave Pvt. Ltd. and details of the source of funds from M/s Texworld Fashions Pvt. Ltd. and M/s Sita Fabric Mills Pvt. Ltd. However, these sources were previously treated as cash credits under Section 68 in AY 2009-10. Consequently, the Assessing Officer concluded that M/s Lily Enclave Pvt. Ltd. was a paper company, and the transaction was not genuine, leading to the addition of Rs. 55 lakhs to the income of the assessee.2. Reliance on the ITAT Ahmedabad Decision:The CIT(A) upheld the addition, referencing the ITAT Ahmedabad decision in Pavankumar M. Sanghvi v/s ITO, which discussed the nature of shell companies and the lack of genuineness in their operations. The CIT(A) observed that M/s Lily Enclave Pvt. Ltd. was a shell company, and the transaction lacked genuineness, thus justifying the addition under Section 68.3. Examination of the Status of the Assessee Company:During the appellate proceedings, it was noted that the name of the assessee company was struck off by the Ministry of Corporate Affairs. However, the assessee's counsel contended that the company's status was still active. The tribunal decided to remit the issue back to the Assessing Officer to verify the status of the assessee company in the ROC records.Tribunal's Findings:The tribunal acknowledged that the Assessing Officer has the authority to examine the source of the source. However, for AY 2012-13, the assessee is not required to prove the source of the source as per the Hon'ble Bombay High Court's decision in Gagandeep Infrastructure (P.) Ltd. The tribunal also referenced the Hon'ble Supreme Court's decision in Sreelekha Banerjee v. Commissioner of Income-tax, emphasizing that the disclosure must come from the assessee.Given the complex nature of the transactions and the failure of the assessee to provide satisfactory explanations, the tribunal decided to remand the issue back to the Assessing Officer. The assessee is granted another opportunity to explain the transactions and provide sufficient evidence to the satisfaction of the Assessing Officer.Conclusion:The tribunal set aside the order of the CIT(A) and remanded the issue back to the Assessing Officer for fresh consideration. The appeal of the assessee is allowed for statistical purposes. The order was pronounced on 29th June 2022.