Addition of Unexplained Share Application Money and Expenditure: ITAT Upholds Deletion by CIT(A) [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal(ITAT)  upheld the Commissioner of Income Tax(Appeals)[CIT(A)]'s decision to delete the additions made by the Assessing Officer(AO)regarding ₹10.5 crores as unexplained share application money and ₹26,25,000 as unexplained expenditure under Section 69C of Income Tax Act,1961,noting the AO's lack of proper verification.

The Revenue-appellant, appealed against the CIT(A)'s order dated April 6, 2021, which stemmed from an assessment under Section 143(3) of the  Act for AY 2012-13. In this case, J.A. Infracon Pvt. Ltd.,respondent-assessee,had no business activity during the year and filed its return for AY 2012-13 on September 27, 2012, declaring a loss of ₹16,301. The return was processed under Section 143(1) and later scrutinized.

Clear all Your Doubts on RCM, TCS, GTA, OIDAR, SEZ, ISD Etc... Click Here

The AO found that the assessee received ₹10.5 crores as share application money from three parties and gave loans and advances of ₹10.46 crores. Notices were issued to provide details of share applicants, but the assessee did not respond. Notices sent under Section 133(6) to the share applicants also went unanswered.

As a result, the AO treated ₹10.5 crores as unexplained income and ₹26,25,000 calculated at 2.5% as commission expenses as unexplained expenditure under Section 69C, leading to a tax demand.

The assessee appealed before the CIT(A), who, after reviewing the remand report and rejoinder, deleted the additions. The commission expenses of ₹26,25,000 were also deleted under Section 69C, and the appeal was allowed.

Read More: ITAT Upholds Deletion of Additions Made on Account of Share Application/Capital Received as Unexplained Cash Credits u/s 68 Income Tax Act

The Revenue appealed before the tribunal aggrieved by the decision of the CIT(A).

The two member bench comprising T.R.Senthil Kumar(Judicial Member) and Narendra Prasad Sinha(Accountant Member) reviewed the records and found that the assessee received ₹10.5 crores as share application money but did not fully comply with notices, while the share applicants failed to respond under Section 133(6). During the appeal, the assessee submitted documents under Rule 46A to establish the identity and creditworthiness of the investors.

The CIT(A) obtained a remand report and issued notices to the investor companies, and M/s. Acacio Tradelink Pvt. Ltd. and M/s. Adamina Traders Pvt. Ltd. confirmed the transactions with supporting documents. The AO did not present any evidence to counter these confirmations and instead relied on oral statements that did not mention the assessee. No further inquiries were made to verify the claims.

The appellate tribunal observed that the additions were based on documents seized from a third party without independent verification. No incriminating material was found during the search at JP Iscon Group, and no statements from its directors or employees confirmed cash payments for share capital. The AO also failed to provide bank statements linking any cash deposits to the share applicants.

How to Audit Public Charitable Trusts under the Income Tax Act Click Here

The remand report referred to affidavits from certain directors, but the CIT(A) found that these individuals were not directors during the relevant period. Their affidavits held no evidentiary value, and they were not made available for cross-examination.

The ITAT concluded that the AO made additions without proper verification, while the CIT(A) conducted a detailed examination and obtained a remand report before deleting them. Since the Revenue could not provide any material evidence to challenge these findings, the bench upheld the CIT(A)’s decision.

In short, the appeal filed by the revenue was dismissed.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates