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Facts
The Revenue filed appeals against orders of the CIT(A) concerning assessment years 2013-14, 2015-16, and 2018-19. The respondent assessee, a granite manufacturing company, failed to disclose the true cost of a building during a survey and received share application money. The AO made additions for undisclosed income related to the building cost and share application money.
Held
The Tribunal held that the CIT(A) failed to properly examine the evidence, including the source of share application money and the cost of construction. The CIT(A) also relied on additional evidence without proper justification and in violation of rules. Therefore, the matters were restored to the CIT(A) for fresh adjudication.
Key Issues
Whether the CIT(A) correctly deleted additions made by the AO concerning share application money and cost of construction, considering the evidence and relevant legal provisions.
Sections Cited
139, 133A, 142, 143, 147, 68, 10(23FB)
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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI INTURI RAMA RAO & SHRI S.S. VISWANETHRA RAVI
आदेश/ O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER: These are appeals filed by the Revenue directed against different orders of the Learned Commissioner of Income Tax (Appeals), Chennai-20 (in short ‘CIT(A)’) dated 14.08.2025, 28.04.2025 & 28.04.2025 for the assessment years 2013-14, 2015- 16 & 2018-19 respectively. to 2051/Chny/2025
Since identical issues and facts are involved in all these appeals, these appeals were heard together and disposed of by this common order.
3. For the sake of clarity and convenience, the facts relevant to appeal bearing for the assessment year 2013-14 are stated herein.
Briefly facts of the case are that the respondent assessee is a company duly incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacturing and sale of granites. The respondent assessee company had not filed return of income under the provisions of section 139 of the Income Tax Act, 1961 (herein after the ‘Act’) for the assessment year 2013-14. A survey operations under the provisions of section 133A of the Act were conducted on 30.01.2019 in the business premises of the appellant. During the course of survey operations, it was found that the respondent assessee company had not disclosed the true and correct cost of building. Therefore, AO referred the matter to District Valuation Officer, Chennai for the purpose of estimating the cost of construction u/s.142 of the Act. It was further found that the respondent assessee was in receipt of share application money to 2051/Chny/2025 which is pending allotment. Based on this information, the AO formed an opinion that income got escaped to tax, accordingly a notice u/s.148 of the Act was issued on 08.03.2021. In response to notice u/s.148 of the Act, the respondent assessee company filed return of income on 25.03.2021 for the assessment year 2013-14 disclosing ‘nil’ income. Against the said return of income, assessment was completed by the AO vide order dated 30.09.2022 passed u/s.143 r.w.s.147 of the Act at a total income of Rs.31,72,00,000/-. While doing so, the AO made addition of share application money of Rs.15 lakhs for the failure of the respondent assessee company to discharge the onus to prove the receipt of share application money. Similarly, the AO made addition of Rs.31,57,00,000/- on account of cost of construction of building, based on the valuation reported dated 09.03.2017 prepared by one Shri S. Ponnivel, Chartered Engineer & Govt. approved valuer which was found during the course of survey proceedings. Since, the assessee company had failed to prove source of cost of construction of building, awaiting the report from the District Valuation Officer, the AO made addition of Rs.31,57,00,000/- on account of cost of construction of building. to 2051/Chny/2025
Being aggrieved by the above assessment order, an appeal was filed before the Ld.CIT(A), who vide impugned order deleted the addition on account of receipt of share application money by holding that the assessee company filed details of the share application money received placing reliance on the decision of the Hon’ble Supreme Court in the case of PCIT vs. NRA Iron & Steel (P.) Ltd., [2019] 412 ITR 161 (SC). Similarly, the Ld.CIT(A) deleted the addition made on account of cost of construction of building of Rs.31,57,00,000/- by holding that the assessee company duly recorded the cost of building in the books of accounts.
Being aggrieved by the order of the CIT(A), the Revenue is in appeal before us in the present appeal. The Ld.CIT-DR submits that the CIT(A) ought not have granted relief without examining the evidence in toto and by considering additional evidence in violation of Rule 46A of the Income Tax Rules, 1962 and also in ignorance of evidentiary value of the statement given by the Managing Director of the respondent assessee company during the course of survey proceedings. It is further submitted that the CIT(A) ought not have deleted addition made on account of receipt of share application money without considering the impact of provisions of second to 2051/Chny/2025 proviso to Section 68 of the Act inserted by the Finance Act, 2012 w.e.f 01.04.2013
On the other hand, the Ld.AR submits that the order of the CIT(A) is a speaking and reasoned one and passed after considering the evidences submitted before him and hence, no interference is called for. He further submits that no addition can be made merely based on the valuer report and he also submitted that the respondent assessee company discharged the onus of proving the genuineness, identity, creditworthiness of the share applicants and therefore, the CIT(A) rightly deleted the addition made by the AO.
We heard rival submissions and perused the material on record. We had carefully perused the assessment order and the order passed by the CIT(A). On mere perusal of the assessment order, it would be evident that the AO had made additions for failure of the respondent assessee company to file the requisite details as called for by the AO during the course of assessment proceedings. The AO made addition of share application money of Rs.15,00,000/- as unexplained money for the failure of the respondent assessee company to discharge its onus of proving genuineness, identity, creditworthiness of share application money.
1. to 2051/Chny/2025 Obviously, it was only during the course of proceedings before the Ld.CIT(A) that the respondent assessee company filed certain details in the form of confirmation letters, copies of IT returns, etc. The AO was not given an opportunity of rebutting this additional evidence filed. Furthermore, the CIT(A) failed to examine the applicability of provisions of second proviso to section 68 to second proviso inserted by the Finance Act, 2012 w.e.f. 01.04.2013, which reads as under:- Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB)of section 10.]
From page 86, 79 & 75 of the paper-book filed before us, it is evident that in the bank statement of respective share applicants, there was a cash deposit in the bank accounts just before money was transferred to the respondent assessee company. This raises a serious suspicion as to the very source of share application money.
1. to 2051/Chny/2025 The CIT(A) without examining the source of share application money had merely accepted the explanation of the assessee company. Thus, the CIT(A) has passed the order without proper application of mind on the facts of the case as well as applying the correct legal position. Therefore, this ground of appeal relating to deletion of share application money, ground of appeal No.2 is restored back to the CIT(A) for fresh adjudication after affording an opportunity of being heard to the respondent assessee company.
With regard to other ground of appeal filed by the Revenue, challenging the deletion of addition on account of cost of building, we find that the CIT(A) had failed to advert to the statement given by the Director of the assessee company during the course of survey proceedings. Further, we find that the CIT(A) had taken into account certain additional evidence in gross violation of provisions of Rule 46A of the IT Rules. Therefore, this ground of appeal is also restored back to the file of the CIT(A) for fresh adjudication in accordance with law.
In the result, the appeal filed by the Revenue for the assessment year 2013-14 is partly-allowed for statistical purposes.
to 2051/Chny/2 There is delay of 24 days in filing the appeal. The Revenue filed an affidavit for condonation of delay of 24 days. On going through the reasons stated, we are of the considered view that the reasons stated by the assessee constitute a reasonable cause for delay in filing the appeal. Accordingly, we condone the delay of 24 days in filing the appeal and admit the appeal for adjudication on merits.
The ground of appeal relates to deletion of addition of Rs.3,43,71,200/- on account of share application money. The facts of the present appeal are identical to the facts in appeal No.2049/CHNY/2025 for the assessment year 2013-14. For the reason stated therein by us, this ground of appeal filed by the Revenue is also restored back to the file of the CIT(A).
In the result, the appeal filed by the Revenue for the assessment year 2015-16 is partly-allowed for statistical purposes. to 2051/Chny/2025 stated in appeal in for the assessment year 2013-14.
Similarly, the addition made on account of difference on account of valuation of closing stock, the AO made addition for the failure of the respondent assessee company to reconcile the difference in the valuation of closing stock between stock statement given to the bank and the valuation shown in the balance sheet as on 31.03.2018. The AO had recorded categorical finding that there is a quantitative difference in stock statement between two statements and also recorded a finding that there is difference in the valuation of closing stock. The CIT(A) without looking into the reconciliation of difference between two statements, merely deleted the addition. Further, we also note that the CIT(A) had not followed the provisions of rule 46A of the IT Rules. Therefore, this matter also restored to the files of the CIT(A) for denovo adjudication after affording reasonable opportunity of being heard to the respondent assessee.
In the result, the appeal filed by the Revenue for assessment year 2018-19 is partly-allowed for statistical purposes. to 2051/Chny/2025
To sum up, the appeals filed by the Revenue in to 2051/CHNY/2025 are partly-allowed for statistical purposes.
Order pronounced in the open court on 17th February, 2026 at Chennai.