E T Devassy & Sons Finance Pvt. Ltd. Vs DCIT (ITAT Cochin)
Cochin ITAT has set aside the order of CIT(A) & restored the matter for fresh adjudication, holding that the appellate authority had erred in invoking section 68 without confronting Assessee, despite the assessee furnishing evidence of source of funds.
Assessee, a non-banking finance company, had filed its return of income for AY 2017-18 declaring income of ₹9,21,690/-. The case was selected for scrutiny & assessment was completed u/s 143(3) on 30.12.2019 determining total income at ₹76,16,170/-, making an addition of ₹25,00,000/- u/s 69A on account of capital contribution introduced by the directors in cash.
Assessee contended that the contribution represented funds from directors’ agricultural income & was duly recorded in the books of account. However, AO treated it as unexplained. On appeal, CIT(A) upheld the addition but shifted the basis from section 69A to section 68, holding that Assessee had failed to prove creditworthiness of directors & genuineness of transactions. CIT(A) also observed violation of section 42 of the Companies Act, 2013 in receiving share capital in cash.
Assessee argued that Capital contribution was recorded in company’s books, hence section 69 was inapplicable. Directors had adequate agricultural income, supported by ITR acknowledgements & board resolution for share allotment. CIT(A) wrongly held that no evidence was furnished, which was contrary to record. Invoking section 68 without putting assessee on notice violated natural justice.
