The Chennai Bench of the Income Tax Appellate Tribunal examined the validity of an addition made under Section 68 of the Income Tax Act, 1961, in respect of share capital introduced by two directors-cum-shareholders, and the refusal of the lower authorities to consider documentary evidence filed by the assessee.

The assessee, engaged in the business of real estate, had received share capital of ₹27,00,000 during the Assessment Year 2018-19, comprising investments of ₹13,50,000 each from two directors, namely Shri Ajit Isaac and Shri K. Sarath Reddy. The assessment was completed under Section 143(3) by making an addition under Section 68 on the ground that the assessee had failed to establish the identity, creditworthiness, and genuineness of the investors. Penalty proceedings under Section 271AAC were also initiated.

The Assessing Officer held that although the amounts were received through banking channels, the assessee had not furnished complete bank statements, confirmations, or other documentary evidence within the time stipulated in the show cause notice. The Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, confirmed the addition, observing that partial salary documents and extracts of bank statements were insufficient to establish the financial capacity of the investors and that the evidence was filed beyond the permitted time.

Before the Tribunal, the assessee filed a petition under Rule 29 of the Income-tax Appellate Tribunal Rules, 1963, seeking admission of additional evidence. The additional documents included complete bank statements, Form 16, and income-tax returns of both directors, evidencing substantial salary income and sufficient financial capacity to make the impugned investments. It was contended that these documents were filed during the assessment proceedings shortly before completion of the assessment, but were not properly considered by the Assessing Officer.

The Tribunal observed that the additional evidence directly addressed the core issue of creditworthiness and genuineness of the transactions and went to the root of the addition made under Section 68. In the interest of substantial justice, the Tribunal admitted the additional evidence on record. Since the evidence required factual verification, the Tribunal restored the matter to the file of the Assessing Officer with a direction to examine the issue afresh in light of the additional documents and pass an order in accordance with law after granting due opportunity to the assessee.

The Tribunal also restored to the file of the Assessing Officer the issue relating to grant of set-off of loss of ₹8,39,115 claimed in the return of income, which was allegedly not given effect to in the computation sheet. The jurisdictional ground relating to assessment in the name of a non-existent entity was left open, as the appeal was decided on merits. The appeal was partly allowed for statistical purposes, and the stay application was dismissed as infructuous.

Source Link - https://itat.gov.in/public/files/upload/1768210320-nZNTVm-1-TO.pdf

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