ITAT Criticizes AO: Characterization of Share Application Money by AO as Unexplained Cash Credit is Devoid and Bereft of Necessary Verifications

ITAT Criticizes AO: Characterization of Share Application Money by AO as Unexplained Cash Credit is Devoid and Bereft of Necessary Verifications

The Income Tax Appellate Tribunal (ITAT), Raipur while criticizing the approach of Assessing Officer (AO), observed that characterization of the share application money of Rs. 25 lakh by the AO as an unexplained cash credit under Section 68 of the Income Tax Act was clearly devoid and bereft of necessary verifications.

The single member, Ravish Sood (Judicial Member) expressed disappointment over the lackadaisical approach adopted by the AO in its assessment order had not verified the genuineness of the transaction in question.

In the present appeal filed by the assessee- Bhatia Energy and Minerals Pvt. Ltd had challenged the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), which in turn arose from the order passed by the A.O under Section 143(3)/147 of the Income-tax Act, 1961 (in short ‘the Act’) dated 28 December, 2018 for the assessment year 2011-12.

On the basis of information gathered by the AO from the office of the Addl. Director of IT (Inv.), Bilaspur, the assessee-company as a beneficiary had received share capital/premium of Rs. 25 lakhs from M/s. Debraj Vincom (P) Ltd., a Kolkata-based company. Its case was reopened. A notice was issued to the assessee company.

In compliance, the assessee company had filed its return of income on 16 September, 2018 declaring an income of Rs. Nil. Copy of the “reasons to believe” at the request of the assessee were made available by the A.O. Objections raised by the assessee as regards the jurisdiction assumed for reopening of its case under Section 147 of the Act were disposed off by the A.O vide his letter dated 1 October, 2018.

During the assessment proceedings, the AO discovered that the assessee-company had received Rs. 25 lakhs in share application money from M/s Debraj Vincom (P) Ltd. Because the assessee had failed to substantiate the receipt of the share application money from the share subscriber company. As a result, the AO classified it as unexplained cash credit and determined the assessee company's income to be Rs. 25,00,000.

The CIT (A) upheld the view taken by the AO and dismissed the appeal.

The ITAT on a perusal of the assessment order, found that he major aspect that had weighed in the mind of the A.O for dubbing the transaction as bogus/dumb was the fact that there was no compliance by the share subscriber company to the notice issued under Section 133(6) of the Act that was issued at its e-mail id provided by the assessee.

The A.O instead of issuing notice under Section 133(6) of the Act at the e-mail id provided by the assessee company had hushed through the proceedings and taken a view that the transaction was a bogus transaction, the ITAT stated.

The ITAT commented, “a perusal of the assessment order reveals that the A.O instead of carrying out necessary verifications had focused mere on referring to certain judicial pronouncements /orders. I am unable to comprehend as to how the A.O could have hushed through the proceedings without making necessary verifications and pointing out any infirmity in the documentary evidences which were placed on his record by the assessee company and summarily dubbed the transaction in question as a bogus transaction. Also, the approach of CIT(Appeals) does not inspire any confidence.”

The ITAT noted that the assessee company had not placed on record any clinching documentary evidence before the AO or before the CIT(A) that would substantiate the authenticity of the transaction in question.

The ITAT was of the view that, “considering the totality of the facts involved in the case before me, I am of the view that the characterization of the share application money of Rs.25 lac by the A.O as unexplained cash credit under Section 68 of the Act is clearly devoid and bereft of necessary verifications by him. At the same time the non-cooperative and evasive conduct of the assessee before the lower authorities can also not be lost sight of.”

Hence, the ITAT opined that in all fairness, the matter requires to be restored to the file of the AO, with a specific direction that he shall, in the course of set-aside proceedings, call for the requisite details and make necessary verifications as regards the identity, creditworthiness, and genuineness of the transaction.