Income / Losses declared by Investor Companies not a Sole Criterion to examine Creditworthiness of Shareholders: ITAT [Read Order]

The New Delhi bench of the Income Tax Appellate Tribunal (ITAT) in Psychotropics Leasing & Finance(P) Ltd. versus Income-tax Officer has held that the income/losses declared by the investor companies are not a sole criterion to examine the creditworthiness of the shareholders.

Here, the issue began with the search done at the premises of a chartered accountant who had been indulged in providing accommodation entries to various companies run by the assessee. Since the assessee was asked to justify regarding the source and nature of share premium in existing assessment proceedings, assessing officer made an addition on the ground that assessee failed to produce share applicant for making the statement regarding unexplained share premium.

The assessee challenged the same before CIT (A) who after considering detailed submission made by the parties, sustained the addition made by the officer.

Further aggrieved Assessee came with an appeal to this tribunal and reiterated the submissions made before CIT (A) along with these filed a written synopsis. On the counterpart revenue’s counsel pointed out that assessee failed to substantiate the identity and creditworthiness of the creditors and failed to discharge the duty laid under section 68 of the Act.

When the matter brought before the ITAT, the bench consisting of Bhavnesh Saini, Judicial Member and L.P. Sahu, Accountant Member who noted the statement of CIT (A) that while directing an enquiry to be conducted by AO has also pointed out non-specifying the section under which the addition was made and how many companies were involved in the allegation and also added many defects in the findings of AO.

After getting the remand report these, all defects were not met with the report but referred some ITI report stating that none of the four companies were found in existence. Also, remand report speaks that assessing officer needs thirty days more to conduct a deep inquiry but the CIT(A) in the impugned order sustained the addition, without giving any further time to the Assessing Officer.

The bench pointed that this action of CIT (A) is not sustainable and held that income/losses declared by the investor companies are not a sole criterion to examine the creditworthiness of the shareholders.

The bench also added that none of the authority not succeeded in establishing any material on record to falsify the fund flow shown in the statement of creditors filed by the assessee and deleted the addition on account of share premium.