Income Tax Appellate Tribunal Chandigarh has allowed balance sheet as additional evidence as being relevant document to prove the matter to be decided.

Case Details:
ITA No.1138-1139/CHD/2014
Assessment Year(s) :2010-11, 2011-12
M/s Lotus Integrated Taxpark Ltd (Appellant) vs DCIT (Respondent)
Date of order: 01-10-2015

Brief Facts of the Case:
Both The appeals were directed against the order of CIT(Appeals), Patiala. The assessee company had allocated 740000 shares to M/s Glacis Investment Limited at premium. The Assessing Officer asked for the Income Tax Return, assessee's PAN number, mode of acceptance of money with date, bank account of M/s Glacis Investment Limited to prove identity, credit worthiness and genuineness of the transactions. The assessee contended that M/s Glacis Investment Limited is non resident company incorporated at Mauritius and certificate of incorporation of the investor company was placed on record. The Assessing Officer, however, held that assessee failed to prove the credit worthiness of the party and genuineness of the transaction and u/s 68 made the addition of Rs.3,70,00,000/- being amount received by the assessee as share capital and share premium from the said non-resident company.

Before CIT(A), the assessee contended that as per provisions of Section 68, assessee is only to prove the nature and source of the cash credit and identity of the investor. It was submitted that in this case, identity is proved by way of address given, certificate of incorporation and Tax Residence Certificate, Credit worthiness was proved as transaction is through banking channel approved by Reserve Bank of India. It was also submitted that confirmation in this case has been obtained and submitted an additional evidence under Rule 46A of the IT Rules and the inability to produce the bank statement does not falsify the credit worthiness of the creditor. The assessee submitted that confirmation could be obtained only after culmination of assessment proceedings. As regards genuineness of the transaction, same is proved as the transaction is through banking channel. CIT(A) However, noted that the assessee has failed to produce the bank statements or balance sheet etc. of the subscriber company therefore, assessee has failed to prove credit worthiness of the subscriber. Therefore, addition was rightly made under section 68 of the Act.

The CIT(Appeals) further noted that even if additional evidence i.e. confirmation of the subscriber is admitted, it would not make any difference because the confirmation would not justify the credit worthiness of the party. This ground was, accordingly, dismissed by him. 

Before ITAT, the assessee filed application for admission of the additional evidence under Rule 29 of the Income Tax Appellate Tribunal Rules and submitted that during the proceedings before the authorities below, assessee was not able to obtain copy of the balance sheet of M/s Glacis Investment Limited and now the assessee has been able to obtain copy of the same.  However, the income tax department objected to the admission of additional evidence.

Excerpts from the ITAT Order:

We have heard rival submissions. The ld. CIT(Appeals) in his findings noted that assessee has failed to produce the bank statements or balance sheet etc. of the subscriber company and as such, assessee failed to prove credit worthiness of the subscriber company being a foreign investment. In the opinion of the ld. CIT(Appeals), the filing of the balance sheet was necessary to prove credit worthiness of the subscriber company. Therefore, the balance sheet of the subscriber company is relevant document and goes to the root of the matter. The assessee has explained the reasons that at the proceedings before authorities below, the balance sheet could not be obtained which is now available to the assessee, therefore, same was filed for consideration. The Hon'ble Supreme Court in the case of Tek Ram 262 CTR 118 admitted the additional evidence being the same relevant and required to be looked into. The Hon'ble Punjab & Haryana High Court in the case of Mukta Metal Works 336 ITR 555 held that “the report of Forensic Science Laboratory was the relevant material and so was the affidavit of the searched persons The additional evidence was necessary for just decision of the matter. The Tribunal was not justified in declining to consider additional evidence comprising the opinion of the laboratory of the Government Examiner and also the affidavit of the author of the diary. Though the documents had a direct bearing on the issue.”

Considering the facts of the case in the light of the above decisions, it is clear from the findings of the ld. CIT(Appeals) that balance sheet of the subscriber company was relevant document to prove the credit worthiness of the subscriber company and would go to the root of the matter. Therefore, the additional evidence in the form of balance sheet of the subscriber company is admitted for hearing. The application of the assessee for admission of the additional evidence is allowed

Download Full Judgment Click Here >>