2023 (3) TMI 258 - AT - Income Tax

Tribunal overturns addition of unexplained cash credit under Income Tax Act, emphasizing evidence and compliance.

The Tribunal allowed the appeal of the assessee, setting aside the Ld. CIT(A)'s order confirming the addition of Rs. 3,30,00,000 as unexplained cash ... Addition u/s 68 - addition of share capital and share premium being unexplained cash credit - HELD THAT:- As decided in the case of CIT Vs Orchid Industries (P) Ltd [2017 (7) TMI 613 - BOMBAY HIGH COURT] by holding that provisions of section 68 of the Act cannot be invoked for the reasons that the person has not appeared before the AO where the assessee had produced on records documents to establish genuineness of the party such as PAN, financial and bank statements showing share application money. In the instant case before us also, the assessee has furnished all the evidences proving identity and creditworthiness of the investors and genuineness of the transactions but AO has not commented on these evidences filed by the assessee. Besides all the four investors have also furnished complete details/evidences before the AO which proved the identity , creditworthiness of investors and genuineness of the transactions. Under these facts and circumstances and considering underlying facts in the light of ratio laid down in the decisions as discussed above , we are inclined to set aside the order of Ld. CIT(A) by allowing the appeal of the assessee. Issues Involved:1. Confirmation of addition of Rs. 3,30,00,000/- as unexplained cash credit under Section 68 of the Income Tax Act.Issue-wise Detailed Analysis:1. Confirmation of Addition as Unexplained Cash Credit:The primary issue in this case revolves around the confirmation of an addition of Rs. 3,30,00,000/- by the Ld. CIT(A), which was initially added by the AO as unexplained cash credit under Section 68 of the Income Tax Act.Facts and Proceedings:The assessee filed a return of income showing a loss of Rs. 1,13,875/-. During scrutiny, it was observed that the assessee had raised Rs. 3,30,00,000/- through share capital and share premium. The AO issued notices and summons under Section 131 to the directors of the assessee company and the share subscribing companies. Although the assessee provided various documents, including names, addresses, PANs of share subscribers, Form 20, Form 2 filed with the ROC, bank statements, ITR, and annual reports, the directors did not appear before the AO. Consequently, the AO added the amount as unexplained cash credit due to the inability to verify the identity, creditworthiness, and genuineness of the transactions.Appellate Proceedings:The Ld. CIT(A) dismissed the appeal due to non-compliance with the summons by the assessee. The assessee argued that the notice was sent to the wrong address and reiterated that all necessary documents proving the identity, creditworthiness, and genuineness of the transactions were submitted during the assessment proceedings. The assessee cited several judicial precedents to support their case, emphasizing that non-compliance with summons should not be the sole ground for making such additions.Arguments and Judicial Precedents:The assessee relied on various decisions, including:- Crystal Networks Pvt. Ltd. vs. CIT (353 ITR 171): The Tribunal should consider all material facts and evidence, and non-compliance with summons should not be the sole basis for addition if identity and creditworthiness are established.- M/s Starland Vinimay Pvt. Ltd. vs. ITO and ITO vs. M/s Cygnus Developers India Pvt. Ltd.: Non-production of directors should not negate the identity of a company if other substantial evidence is provided.- CIT vs. Orchid Industries Pvt. Ltd. (397 ITR 136): Section 68 cannot be invoked merely due to non-appearance if sufficient evidence proving identity and creditworthiness is submitted.Tribunal's Findings:The Tribunal noted that the assessee had submitted comprehensive evidence, including share application forms, board resolutions, bank statements, PANs, incorporation certificates, audited accounts, and share allotment certificates. The AO did not point out any defects in these documents but relied solely on the non-compliance with summons. The Tribunal held that non-compliance with summons under Section 131 or non-appearance of directors cannot be the sole basis for making additions if the assessee has provided substantial evidence proving the identity, creditworthiness, and genuineness of the transactions.Conclusion:The Tribunal concluded that the assessee had discharged its onus by providing all necessary documents and evidence. The mere non-compliance with summons should not result in additions under Section 68. The Tribunal set aside the order of the Ld. CIT(A) and allowed the appeal of the assessee, emphasizing the importance of considering all material facts and evidence.Final Order:The appeal of the assessee was allowed, and the order was pronounced in the open court on 23rd February 2023.