Factual Examination Of Dispute Regarding 'Addition' Of Unexplained Cash Credit U/S 68 Of IT Act Is Beyond Scope Of Appeal U/S 260A: Calcutta HC
Kapil Dhyani
16 Nov 2024 10:30 AM IST
The Calcutta High Court has held that it cannot indulge in factual examination of the material produced or not produced by an assessee-company to explain the share capital and premium received by it, in an appeal filed under Section 260A of the Income Tax Act. A division bench of Chief Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya thus refused to interfere with an...
The Calcutta High Court has held that it cannot indulge in factual examination of the material produced or not produced by an assessee-company to explain the share capital and premium received by it, in an appeal filed under Section 260A of the Income Tax Act.
A division bench of Chief Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya thus refused to interfere with an ITAT order which deleted additions made by the Assessing Officer towards “unexplained” share capital and share premium of Rs.15,51,00,000/- under Section 68.
Section 68 empowers the AO to assess unexplained cash credit in assessee's account as 'Income' and add it to the total income of the assessee.
In the case at hand, the Income Tax Department was aggrieved by ITAT order deleting the addition made by the IO, by allegedly ignoring that the assessee failed to explain its non-existence at its registered address, share capital, reserves and surplus, net worth and turnover so as to justify the share premium charged by it within a short duration of seven months after its incorporation.
The ITAT order was based on the fact that the assessee had discharged its onus to prove the identity and creditworthiness of the share subscribing companies and the genuineness of the transactions.
Before the High Court, the Department contended that none of those companies had any creditworthiness to invest in the shares of the assessee company, that too, at a high premium.
It reasoned that not even a single Director of the share subscribing companies appeared before the AO, nor provided reasons for such non-appearance.
ITAT however had recorded in its order that all the share subscribing companies had responded to the notices issued under Section 138(6) of the Act, made their submissions and produced documents.
In this backdrop the High Court observed,
“examination of the factual position as sought for cannot be done in an appeal filed under Section 260A of the Income Tax Act and it is the duty of the Assessing Officer to have done such an exercise.”
Significantly, the ITAT had recorded that the AO failed to controvert the evidence furnished by the share subscriber companies during the assessment proceedings.
ITAT said the AO had simply added the amount of share capital and share premium on the ground that the assessee had not produced the directors/shareholders. But, the AO ignored the reply given in response to notice, under the seal and stamp of the directors.
In view of this the High Court observed,
“it is the duty on the Assessing Officer to deal with those documents, point out any discrepancies and then make the addition. However, the Assessing Officer failed to do so and the CIT(A) also committed same error. Therefore, we find the learned Tribunal was well justified in allowing the assessee's appeal.”
Appearance: Advocate Amit Sharma for Appellant; Advocates Kartik Kurmy, Indranil Banerjee, and Subrata Mukherjee for Respondent
Case title: Principal Commissioner Of Income Tax-5, Kolkata Vs M/S. Delta Dealers Private Limited
Case no.: ITAT/148/2024
