9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (5) TMI 1653 - AT - Income TaxAddition u/s 68 - creditworthiness of the lenders/shareholders not established - when the 89% of the share capital has been accepted by the assessing officer as a genuine then why not only 11% share capital should not be treated as a genuine based on the same facts and circumstances. HELD THAT - We find that assessee has filed the details before assessing officer such as identity proofs acknowledgements of returns of income for the assessment year under consideration and the immediately preceding assessment year bank statements / passbooks copies of balance sheet for the previous year relevant to the assessment year under consideration and immediately preceding previous year of the said persons to establish genuineness of transactions identity and creditworthiness of shareholders. The assessee also submitted the relevant documents and evidences of the third parties from whom they took the loan. Thus the ingredients of section 68 that is identity and creditworthiness of the lenders and genuineness of transaction were satisfactorily proved by the assessee - assessee in support of his arguments submitted detail of share applicants along with relevant case laws which has been duly perused. We find that shareholders have furnished the entire data of his financial statements which are not in doubt and the shareholder have also furnished the financial data of its creditors (third party) duly supported by their ITR statement of income profit and loss account bank statement and balance sheet. The audited cash book of share applicants reflecting cash on hand were also submitted before the assessing officer. Once the source of the source is explained with supporting evidences the assessee has discharged onus lies on it as provided in proviso inserted by the Finance Act 2012 to section 68 of the Act. As the assessee has explained both the nature source of the share application money received and source of the source also was fully explained by the assessee. Assessee had discharged its onus to prove the identity creditworthiness and genuineness of the loan. No error in the conclusion drawn by the CIT(A) in this regard. We thus decline to interfere with the conclusion so drawn by the CIT(A) and dismiss ground No.1 raised by the revenue. CIT(A) accepting additional evidences in violation of rule 46A of the Income Tax Rule 1962 without giving an opportunity to the AO - We have heard both the parties and noticed that during the appellate proceedings the assessee has not submitted any additional evidence. The evidence which is available at the public domain which is available for all as a supporting evidence to prove the original evidence submitted by assessee during assessment proceedings cannot be treated additional evidence. As in the case of Manish Build Well (P.) Ltd. 2011 (11) TMI 35 - DELHI HIGH COURT as held that the CIT(A) is statutory first appellate authority and has independent power of examination of evidences and possesses co-terminus power of assessment apart from appellate powers. Decided against revenue.
The core legal questions considered by the Tribunal in this appeal relate primarily to the applicability of section 68 of the Income-tax Act, 1961, concerning unexplained cash credits in the form of share capital/unsecured loans. Specifically, the issues are:
1. Whether the addition of Rs. 1,32,68,300/- made by the Assessing Officer (AO) on account of unexplained cash credits under section 68 of the Act was justified, considering the assessee's submission of evidence regarding the identity, creditworthiness, and genuineness of the shareholders/lenders. 2. Whether the Learned Commissioner of Income Tax (Appeals) [CIT(A)] erred in accepting additional evidence during appellate proceedings in violation of Rule 46A of the Income Tax Rules, 1962, without providing an opportunity to the AO. Issue 1: Legitimacy of Addition under Section 68 of the Income-tax Act Relevant Legal Framework and Precedents: Section 68 of the Income-tax Act deals with unexplained cash credits. It mandates that where any sum is found credited in the books of an assessee and the assessee offers no satisfactory explanation about the nature and source of such sum, the sum is to be treated as income. The three essential ingredients under section 68 are:
The burden lies initially on the assessee to prove these three elements. The proviso inserted by the Finance Act, 2012, further clarifies that if the assessee explains the source of the funds of the lender, the onus is discharged. Judicial precedents emphasize that the Assessing Officer cannot arbitrarily reject the creditworthiness of a lender who is himself an income tax assessee, especially when the lender's return has not been disallowed by the AO of the lender. The Calcutta High Court decision cited establishes that the AO of the assessee must verify genuineness with the AO of the creditor before rejecting creditworthiness. Court's Interpretation and Reasoning: The Tribunal observed that the AO had accepted the identity, genuineness, and creditworthiness of shareholders to the extent of Rs. 10,07,86,700/- but disallowed Rs. 1,32,68,300/- on the ground that the assessee failed to satisfactorily explain this portion of share capital. The Tribunal questioned the rationale of partial acceptance and partial rejection of share capital when the same set of documents and evidences were submitted for the entire amount. The assessee had submitted comprehensive documentary evidence for all shareholders, including notarized affidavits, bank statements demonstrating sufficient balances, copies of PAN cards, income tax returns, ledger accounts, and details of the immediate sources of funds along with financial statements of third parties (source of the source). The Tribunal found these documents credible and sufficient to prove identity, creditworthiness, and genuineness. Furthermore, the Tribunal noted that the shareholders had complied with notices under section 133(6) of the Act, and there was substantial cash balance available with the source of the share applicants. The AO's contention that funds were deposited immediately before subscription was found to lack merit. In line with judicial precedent, the Tribunal held that the AO cannot dispute creditworthiness of the lenders who are themselves income tax assessees unless the AO of the lenders has disallowed their returns. Since no such adverse finding existed, the AO's partial rejection was arbitrary. Key Evidence and Findings: The assessee furnished:
The Tribunal found the evidences credible and consistent across the entire share capital amount. Application of Law to Facts: Given the uniformity of evidence and acceptance of 89% of the share capital, the Tribunal concluded that the remaining 11% share capital could not be arbitrarily rejected. The assessee had discharged the onus under section 68 by explaining the source and source of source of funds. Treatment of Competing Arguments: The Revenue argued that the shareholders lacked creditworthiness due to low income and heavy loans in their personal balance sheets, making investment impossible. The Tribunal rejected this, emphasizing that the AO cannot assess the creditworthiness of a lender who is an income tax assessee without reference to the AO of the lender. The assessee's submission of detailed financial data and corroborative evidence was held sufficient. Conclusions: The Tribunal upheld the CIT(A)'s deletion of the addition of Rs. 1,32,68,300/-, dismissing the Revenue's ground on this issue. Issue 2: Admission of Additional Evidence by CIT(A) in Violation of Rule 46A Relevant Legal Framework and Precedents: Rule 46A of the Income Tax Rules, 1962, governs the procedure for submission and admission of additional evidence during appellate proceedings. Generally, additional evidence can be admitted only with the opportunity to the AO to examine such evidence. The powers of the CIT(A) are co-terminus with the AO, including examination and assessment powers. The Delhi High Court decision cited clarifies that the CIT(A) has independent powers of examination and assessment apart from appellate powers. Court's Interpretation and Reasoning: The Tribunal found that no new evidence was submitted by the assessee during appellate proceedings. The so-called additional evidence was publicly available information used to support the original evidence. Therefore, it did not amount to additional evidence requiring compliance with Rule 46A. Key Evidence and Findings: The Tribunal noted the absence of any fresh evidence filed by the assessee at the appellate stage. Application of Law to Facts: Since the CIT(A) did not admit any new evidence but relied on publicly available supporting information, there was no violation of Rule 46A or denial of opportunity to the AO. Treatment of Competing Arguments: The Revenue contended that the CIT(A) erred in accepting additional evidence without giving the AO an opportunity. The Tribunal rejected this, holding that no additional evidence was admitted in the legal sense. Conclusions: The Tribunal dismissed the Revenue's ground on this issue as well. Significant Holdings and Core Principles Established: "The ingredients of section 68 of the Act, that is, identity and creditworthiness of the lenders and genuineness of transaction were satisfactorily proved by the assessee." "If creditworthiness of the share applicant is disputed by the A.O then all the share application money is to be added back by the AO and not just a partial sum out of total which clearly is a case of arbitrary application of a criterion." "So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness of transaction through account payee cheque has been established." "The evidence which is available at the public domain, which is available for all as a supporting evidence to prove the original evidence submitted by assessee during assessment proceedings, cannot be treated additional evidence." The Tribunal reaffirmed the principle that the burden under section 68 is on the assessee to prove identity, creditworthiness, and genuineness, and that once the source and source of source are satisfactorily explained, the addition cannot be sustained. The Tribunal also clarified that the CIT(A) has plenary powers co-terminus with the AO and can examine evidence independently, and that acceptance of publicly available supporting evidence does not violate procedural rules on additional evidence. Accordingly, the Tribunal dismissed the Revenue's appeal, upholding the deletion of the addition of Rs. 1,32,68,300/- and rejecting the contention regarding violation of Rule 46A.
|
