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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO& SHRI D.S. SUNDER SINGH
आदेश /O R D E R
PER D.S. SUNDER SINGH, Accountant Member: This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals) [CIT(A)]-10, Hyderabad vide I.T.A. No. 0088/CIT(A)-10/2017-18/CIT(A), HYD-10/10217/2017-18 dated 19.06.2018 for the assessment year 2013-14.
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The assessee filed the return of income declaring loss of Rs.50,12,185/- for the assessment year 2013-14 on 31.10.2013. The case was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter called as ‘Act’) and subsequently selected for scrutiny under CASS and the Assessing Officer (AO) has taken up the assessment.
During the assessment proceedings, the AO found that the assessee had accepted the share application money of Rs.49,87,919/- during the year under consideration. The assessee furnished confirmation letters from 25 persons from whom the assessee accepted the share application money. The AO asked the assessee to produce the investors and in response, the assessee produced five of such investors for verification from whom the statements were recorded by the AO and the AO observed the share applicants could not prove their credit worthiness and failed to produce any documentary evidence to prove their identity, profession, income certificate to establish their claims having paid the share application money. The assessee could not produce the remaining share applicants. Therefore, the Ld.AO found that mere furnishing of confirmation letters without any proof of their identity, source of income etc. cannot come to the rescue of the assessee. Therefore, viewed that all the
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persons who have paid the share application money are name lenders, and accordingly, made the addition u/s 68 of the Act.
Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) observed that mere receipt of share application money through banking channel cannot by itself prove the genuineness of the transaction. The Ld.CIT(A) suspected that why the 25 persons would remain silent, without receiving the shares even after making the investment. Failure of the assessee to furnish the relevant documents and produce the persons for verification, as required, further strengthens the view that the transactions under consideration are not genuine. Therefore upheld the addition made by the AO and dismissed the appeal of the assessee.
Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before this Tribunal. During the appeal hearing, the Ld.AR submitted that the company is presently not operational and the factory was auctioned by APSFC. The directors of the company are in dispute and some important documents were destroyed in HudHud cyclone. The company also has huge carried forwarded business losses and unabsorbed depreciation. The AO during the assessment proceedings asked the assessee to produce the investors and the assessee has produced 5 persons who have invested in the company and all of
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them confirmed having subscribed to share capital. As per the list, all these 25 persons have invested the amount ranging from 1.5 lakhs to 3 lakhs on different dates during the year towards the share application money. The assessee has produced 5 persons for verification and all of them have confirmed having given the sums. The share applicants were having substantial source of income either from business or from agriculture. All of them have paid the share application money through bank cheques. Due to technical reasons, the allotment could not be done and the same was disclosed in the balance sheet. Thus, the Ld.AR argued that the assessee has discharged its onus to prove the genuineness of the transaction and thus the Ld.CIT(A) is not justified in confirming the addition made by the AO. The Ld.AR relied on the decision of ITAT, Visakhapatnam in the case of Meridian Promoters (P) Ltd., Visakhapatnam Vs. DCIT, Central Circle-2, Visakhapatnam vide I.T.A.No.74/Vizag/2010 dated 06.11.2015.
On the other hand, the Ld.DR submitted that in this case, the AO has given sufficient opportunities to the assessee for production of the evidences. Though the assessee furnished the confirmation letters, they are incomplete. Inspite of the fact that the assessee has produced 5 persons, the AO found that all the five applicants do not have the credit worthiness to make the
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investment. Though the amounts were received through cheques, merely because the amount was paid through cheques it cannot be held that the source is genuine. Therefore, the Ld.DR argued that the AO made the addition correctly and the Ld.CIT(A) confirmed the addition rightly, hence, no interference is called for in the order of the Ld.CIT(A) and requested to uphold the order of the Ld.CIT(A).
We have heard both the parties and perused the material placed on record and gone though the orders of the lower authorities. In this case, the assessee company is not operational and the company was closed. The impugned assessment year was 2013-14 and taken up the assessment in 2014- 15. The company was closed and the factory was auctioned by APSFC and lot of important documents stated to have been destroyed in HudHud cyclone. During the assessment proceedings, the assessee was asked to produce the share applicants and the assessee has produced 5 persons and the confirmation letters form all 25 persons which were placed in the paper book in page No.32 to 56. The assessee also furnished the details of the receipt of share application money, applicant wise with clear address in page No.30 to 31, Mode of payment of all the payments was through cheque / NEFT / RTGS. The cheque numbers were also furnished by the assessee. In the confirmation
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letter, the share applicants have confirmed the payment of share application money and also disclosed their source of income. Most of the sources of the income were stated to be business / agriculture / private job holders. Though the assessee produced 5 persons before the AO and the AO has given an observation that none of them have credit worthiness and did not produce any document with regard to identity, profession, income certificate etc.., but the AO has not furnished the names of the persons and discussed in detail share applicant wise, the contents of the statement recorded from them and as to why the applicants lacking the source. In the absence of complete discussion, much reliance cannot be placed on the observations of the AO with regard to the credit worthiness in the case of 5 persons who were produced before the AO. In the remaining cases, the assessee has furnished the confirmation letters furnishing the details of address and the source of income, but the AO did not cause any enquiries for verification. The AO even did not issue notice u/s 133(6) calling for the information from the share applicants. In the absence of any enquiries made, contents of confirmations cannot be held adversely against the assessee. It is a settled principle that suspicion whatever strong, the same cannot be held against the assessee unless it is proved. Having filed the confirmations, explained the sources, the assessee has discharged its burden and the onus is shifted to the AO and the AO did not shift the burden again to
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the assessee. Therefore, having failed to prove that the share application money received by the assessee was bogus, we are unable to sustain the order of the Ld.CIT(A). Accordingly, we set aside the order of the Ld.CIT(A) and allow the appeal of the assessee.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 16th November, 2018.
Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर ससह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयकसदस्य/JUDICIAL MEMBERलेखासदस्य/ACCOUNTANT MEMBER धिशाखापटणम /Visakhapatnam ददिांक /Dated : 16.11.2018 L.Rama, SPS
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आदेश की प्रधिधलधप अग्रेधर्ि/Copy of the order forwarded to:- 1. अपीलाथी / The Appellant – M/s Sri Laxmi Narayana Jute Mills (P) Ltd., D.No.7-106, Cheepurupalli Street, Bobbili, Vizianagaram Dist. 2. प्रत्यार्थी / The Respondent– Income Tax Officer, Ward-1, Vizianagaram 3. The Pr.CIT-1, Visakhapatnam 4. The Commissioner of Income Tax (Appeals)-10, Hyderabad 5. धिभागीय प्रधिधिधि, आयकर अपीलीय अधिकरण, धिशाखापटणम /DR, ITAT, Visakhapatnam 6. गाडा फ़ाईल / Guard file
आदेशािुसार / BY ORDER // True Copy //
Sr. Private Secretary ITAT, VISAKHAPATNAM