Receipts By Taxpayer Can't Be Added To Its Income U/s 68 For Just Non-Compliance Of Summons Issued U/s 131: Kolkata ITAT
On finding that the addition is based upon conjecture and surmises and not on records which were available before the authorities, the Kolkata ITAT set aside the order passed by the CIT(A) and directed the AO to delete the addition made u/s 68 of the Income Tax Act. The ITAT held that besides the mere fact that the assessee has failed to produce the principals of the subscribing...
On finding that the addition is based upon conjecture and surmises and not on records which were available before the authorities, the Kolkata ITAT set aside the order passed by the CIT(A) and directed the AO to delete the addition made u/s 68 of the Income Tax Act.
The ITAT held that besides the mere fact that the assessee has failed to produce the principals of the subscribing company due to which investment could not be verified, there was no other ground for making addition in the hands of the assessee.
The Bench of the ITAT comprising of Sonjoy Sarma (Judicial Member) and Rajesh Kumar (Accountant Member) observed that “the AO has to carry out further verification/examination of these evidences and then come to a conclusion as to how the share capital/share premium is not proved and not merely on the ground that the assessee has not complied with the summons issued u/s 131 of the Act. The amounts received by the assessee cannot be added to the income of the assessee for just non-compliance of summons.” (Para 5)
As per the brief facts of the case, the Assessee's return was selected for scrutiny, wherein AO found that the assessee has issued some equity shares whereas the income declared by the company during the year was NIL. Accordingly, notices u/s 142(1) issued along with questionnaire calling upon the assessee to file the details qua the subscribers/investors and prove the identity and creditworthiness of the subscribers and the transactions. The AO also issued summons u/s 131 to the director of the assessee company in order to secure their presence. However, no compliance made to the said summons. Finally, the AO added the entire share capital and share premium to the tune of Rs. 1.21 Crore to the income of the assessee as unexplained cash credit on the ground that there was no compliance to the summons issued u/s 131 and therefore, identity, creditworthiness of the subscribers and genuineness of the transactions could not be examined.
The CIT(A) also confirmed the addition made by the AO after providing a reasoning that the assessee could not prove the three ingredients as envisaged by the provisions of Section u/s 68.
The Bench noted that the assessee has filed all the details/evidences before the AO qua the subscribers namely ITRs, balance sheets, addresses and bank accounts before the AO.
The Bench observed that the AO without doing any further investigation treated the share capital/share premium as unexplained cash credit on the ground that summons issued u/s 131 were not complied with. In our opinion, once the assessee has filed the evidences as required by the AO in order to prove the share capital/share premium then the assessee has discharged his onus of filing the documents initially and the burden shifts to the Revenue.
The Bench further observed while referring to the case of Yash Movers Pvt. Ltd. vs. ITO in ITA No. 601/KOL/2023 that the cash has been deposited in the bank accounts of the subscribers immediately one or two days before issuance of cheques in favour of the assessee will not perse prove that these transactions were non-genuine.
The Bench also stated while referring to the case of ITO vs. Naina Distributors Pvt. Ltd. in ITA NO. 651/Kol/2020 that non-production of directors of the investors cannot be a ground for making addition in the hands of the assessee u/s 68 when the other evidences relating to the raising share capital and also qua the share subscribers are available on record as furnished by the assessee.
Therefore, on finding that the only reason for making the addition in the hands of the assessee, the director of the assessee company did not respond to the summons issued by the AO, ITAT allowed the assessee's appeal for statistical purposes.
Counsel for Appellant/Taxpayer: Miraj D. Shah
Counsel for Respondent/Department: P.P. Barman
Case Title: Nano Infra Promoters Pvt. Ltd verses ITO
Case Number: I.T.A. No.: 290/KOL/2023