AO Fails to Probe Evidence, Relies Solely on Non-Production of Directors of Subscribing Companies: ITAT Deletes Section 68 Addition [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the Section 68 addition under Income Tax Act, 1961, noting that the Assessing Officer ( AO ) failed to investigate the evidence and relied solely on the non-production of the directors of the subscribing companies.

The assessee, Sati Promoters Pvt Ltd was selected for scrutiny in order to examine the large share premium received during the year. Accordingly statutory notices were duly issued and served to the assessee. In response to the various notices, the assessee appeared before the AO and also furnished certain details/information before the AO as stated at page no. 2 of the Assessment Order. The assessee issued 9900 Equity Shares at Face Value of Rs. 10/- each at Premium of Rs. 1990/- per Equity Share during the Financial Year.

 The details/information filed before the AO comprised copies of audited financial statements, ITR, PAN, ledger accounts and bank statements of the assessee besides filing copies of balance sheets, bank statements, audited accounts/ reports, certificates of incorporation, share application forms, share allotment letters, copies of share certificate, assessment orders under Section 143(3) of the Income Tax  Act(of five subscribers), source of source certificates (of five subscribers)of the subscribers vide letter dated 15.01.2015.

The AO issued summons under Section 131 of the Act directing the Assessee to produce the directors of the subscribing companies. The said notice was duly complied by the directors of the assessee company submitting all the documents as called for but the directors of the subscribing companies did not attend personally.

The Commissioner of Income Tax (Appeals) [CIT(A)] dismissed the appeal of the assessee on the ground that though the assessee has filed documents before the AO as well as before the CIT(A) however there were certain transactions which appeared to be not genuine as the premium was to the tune of Rs. 1,990/- each and thus, dismissed the appeal.

The bench found that the case of the assessee was selected for scrutiny for share capital/large share premium received by the assessee during the instant financial year. The AO during the course of assessment proceedings called upon the assessee to furnish the evidences relating to identity, creditworthiness of the investors and genuineness of the transactions.

Besides the AO issued summon under Section 131 of the Income Tax Act to the directors of the assessee directing to produce all the directors with certain information comprising proof of identity, voter card, passport, driving license, PAN, list of entities/ subscribers or director of the shareholders, ITR, audited accounts, bank statement, source of funds etc.

Further filed before the AO the share allotment chart, details of share applicants and share application, copies of its audited financial statement, ledger accounts, bank statement as well as all the evidences in respect of subscribers vide letter dated 15.01.2015 comprising copies of PANs, copies of audited accounts along with report, bank statements, audited accounts/ reports, certificates of incorporation, share application forms, share allotment letters, copies of share certificate, assessment orders under Section 143(3) of the Income Tax Act(of five subscribers) , source of source certificates (of five subscribers) of the subscribers vide letter dated 15.01.2015

The two member bench of the tribunal comprising Sanjay Sharma ( Judicial member) and Rajesh Kumar ( Accountant member) noted that the assessee has furnished all the evidences before the AO but the AO has failed to conduct any further enquiry into these details /evidences and merely relied on the theory of non-production of directors of the subscribing companies by the assessee while issuing no summons under Section 131 or notices under Section 133(6) of the Income Tax Act, 1961 to the subscribers. Considering the facts of the case in the light of the above decisions of the coordinate benches and jurisdictional High Court, ITAT, set aside the appellate order passed by the CIT (A) and directed the AO to delete the addition.

To Read the full text of the Order CLICK HERE

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