2025 (7) TMI 34 - AT - Income Tax

Addition on account of increase in share capital u/s. 68 - in the absence of information regarding the share capital increase the entire share capital is added as the income of the assessee - HELD THAT - From the reply filed by the assessee party-wise ledger account of share capital and shareholders bank account statements furnished by the assessee. AO made the entire share capital as unexplained addition which is not sustainable in law. Similarly party-wise ledger account for long term borrowings as specified by the AO in his notice u/s. 143(2) was furnished by the assessee. Without considering the same the AO made addition which is not sustainable in law. Similarly the other additions made by the Assessing Officer are without verifying the replies and documents submitted by the assessee during the Faceless Assessment proceedings. Therefore in the Principle of Natural Justice we deem it fit to set aside the matter back to the file of Jurisdictional Assessing Officer to consider the same on merits by giving proper opportunity of hearing to the assessee and pass order on merits. Appeal filed by the Assessee allowed for statistical purpose.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

(a) Whether the addition of Rs. 67,50,000 on account of increase in share capital under section 68 of the Income Tax Act, 1961, was justified in the absence of adequate supporting evidence, despite the assessee's compliance with the Companies Act, 2013 and filing of relevant forms with the Ministry of Corporate Affairs;

(b) Whether the addition of Rs. 10,47,62,861 as unexplained non-current liabilities under section 68 was sustainable, considering the assessee's submission of ledger confirmations and proof of payment of interest tax deducted at source (TDS) on unsecured loans;

(c) Whether the addition of Rs. 79,84,574 relating to trade payables under section 68 and the consequent taxation under section 115BBE was appropriate, given the assessee's financial difficulties and partial submission of ledger confirmations and trade payable ledgers;

(d) Whether the addition of Rs. 3,61,68,203 being 10% of total purchases due to absence of bills and vouchers was justified, in light of the submission of GSTR-3B and GSTR-2A summaries and scanned purchase bills;

(e) Whether the Assessing Officer's dismissal of the assessee's submissions and documents without proper appreciation or opportunity of hearing, especially in a faceless assessment proceeding, violated principles of natural justice;

(f) Whether the appellate authority's ex-parte confirmation of additions without the assessee's participation was proper.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Addition on account of increase in share capital under section 68

The legal framework governing unexplained cash credits, including share capital, is section 68 of the Income Tax Act, 1961. The onus lies on the assessee to satisfactorily explain the source of share capital and produce credible evidence such as bank statements, share application forms, and confirmations to establish genuineness.

The assessee contended that the increase in share capital was in compliance with the Companies Act, 2013, and relevant forms were duly filed with the Ministry of Corporate Affairs. Supporting documents including party-wise ledger accounts and shareholders' bank statements were submitted during the assessment proceedings.

The Assessing Officer disregarded these submissions, treating the entire share capital as unexplained and making an addition under section 68. The Tribunal noted that the Assessing Officer failed to appreciate the detailed replies and documentary evidence provided by the assessee, which prima facie established the source and genuineness of the share capital increase.

Precedents establish that mere non-filing of certain documents or procedural lapses cannot lead to addition if substantive evidence is available. The Tribunal emphasized that unexplained additions under section 68 require careful scrutiny of evidence rather than mechanical rejection.

Accordingly, the Tribunal concluded that the addition on account of share capital was not sustainable in law without proper appreciation of the evidence.

Issue (b): Addition of non-current liabilities under section 68

The non-current liabilities mainly comprised secured and unsecured loans taken to manage financial crises. The assessee furnished party-wise ledger accounts and confirmations of unsecured loans, along with proof of TDS deducted and paid on interest, indicating the genuineness of these liabilities.

The Assessing Officer ignored these submissions and added the entire amount as unexplained income. The Tribunal observed that such an approach was legally untenable, as the assessee had provided sufficient documentary evidence to explain the source and nature of these liabilities.

The Tribunal underscored the principle that unexplained credits must be examined on merits with due regard to the evidence submitted, and cannot be added merely due to procedural non-compliance or non-verification.

Hence, the addition of non-current liabilities was held to be unsustainable without proper consideration of the assessee's replies and documents.

Issue (c): Addition relating to trade payables and taxation under section 115BBE

The assessee faced financial difficulties and was unable to fully confirm trade payables, though partial ledger confirmations and accounts were submitted. The Assessing Officer added the entire trade payable amount as unexplained under section 68 and taxed it under section 115BBE, which applies to unexplained investments and credits.

The Tribunal noted the assessee's genuine financial distress and ongoing efforts to obtain confirmations. It held that the Assessing Officer's addition without considering these facts and partial evidence was unjustified. The Tribunal stressed that unexplained credits must be established beyond doubt and that partial evidence cannot be summarily rejected.

The Tribunal found the addition and taxation under section 115BBE inappropriate in the circumstances.

Issue (d): Addition of 10% of total purchases for absence of bills and vouchers

The Assessing Officer made an addition of Rs. 3,61,68,203 being 10% of purchases due to lack of bills and vouchers. The assessee submitted GSTR-3B and GSTR-2A summaries for the financial year 2021-22 and scanned copies of purchase bills covering a substantial portion of purchases.

The Tribunal observed that the Assessing Officer did not adequately consider these submissions. Given that GST returns and purchase bills are valid documentary evidence, the addition without proper verification was unwarranted.

The Tribunal emphasized that the burden lies on the Assessing Officer to verify the authenticity of the documents before making such additions.

Issue (e): Violation of principles of natural justice in faceless assessment proceedings

The assessee contended that all supporting documents were filed during assessment proceedings, but the Assessing Officer ignored them and dismissed the case without issuing proper paper notices. The assessee also highlighted difficulties arising from electronic communications being missed or routed to spam.

The Tribunal recognized that faceless assessment proceedings require strict adherence to principles of natural justice, including providing adequate opportunity to the assessee to present their case and proper communication of notices.

The Tribunal found that the Assessing Officer's failure to consider the assessee's submissions and documents, coupled with the absence of proper hearing opportunity, violated natural justice principles.

Issue (f): Ex-parte confirmation of additions by the appellate authority

The assessee did not participate in the appellate hearing due to miscommunication. The CIT(A) confirmed the additions ex-parte. The Tribunal noted that while the appellate authority provided multiple hearing opportunities, the assessee's non-participation led to dismissal.

However, considering the procedural irregularities and miscommunication, the Tribunal deemed it appropriate to set aside the appellate order and remit the matter for fresh adjudication with proper hearing.

3. SIGNIFICANT HOLDINGS

"The Assessing Officer made the entire share capital as unexplained addition which is not sustainable in law."

"Without considering the party-wise ledger accounts and confirmations furnished by the assessee, the additions made by the Assessing Officer are without verifying the replies and documents submitted by the assessee during the Faceless Assessment proceedings."

"In the Principle of Natural Justice, we deem it fit to set aside the matter back to the file of Jurisdictional Assessing Officer to consider the same on merits by giving proper opportunity of hearing to the assessee and pass order on merits."

The Tribunal established the core principle that additions under section 68 must be based on a thorough and fair examination of evidence and cannot be mechanically imposed without appreciating the assessee's submissions.

It reaffirmed that faceless assessment proceedings must comply with natural justice, including proper communication and hearing opportunities.

Finally, the Tribunal set aside the orders of the Assessing Officer and the CIT(A), remitting the matter for fresh adjudication on merits after affording the assessee a proper opportunity of hearing.