2012 (12) TMI 3 - AT - Income Tax

Addition u/s 68 - unexplained share capital - the names and addresses of the shareholders, number of shares allotted, their Permanent Account Nos. and the AO with whom they are assessed were available with the AO. - held that - The AO made direct inquiry from the shareholders and each one of them have affirmed the amount invested in the share capital of the assessee company. The AO made verification from the AO of the shareholders from where also, it is affirmed that the said shareholders have invested the money in the share capital of the assessee company. The Profit & Loss account and balance sheet of the shareholders are produced, bank accounts are also produced. In view of these facts, we hold that the assessee has duly discharged the burden of proving the share capital which lay upon it. - Addition of Rs. 1,38,00,000 made by the AO on account of unexplained share capital u/s 68 of the IT Act deleted. - Decided in favor of assessee.

Issues Involved:
1. Addition of Rs. 1,38,00,000 on account of share capital under Section 68.
2. Enhancement of income by Rs. 94,00,000 by CIT(A).
3. Legality of the assessment order and jurisdiction.
4. Charging of interest under Section 234B.

Detailed Analysis:

1. Addition of Rs. 1,38,00,000 on Account of Share Capital Under Section 68:
The assessee, a limited company, filed a return declaring an income of Rs. 30,856. The AO noticed an increase in the share capital by Rs. 2,82,00,000 during the financial year 2003-04 and made an addition of Rs. 1,38,00,000 under Section 68 for unexplained share capital. The CIT(A) confirmed this addition. The assessee argued that it provided all necessary documents, including confirmation of shareholders, PAN, share application forms, and bank accounts, thereby discharging its onus under Section 68. The ITAT noted that the AO verified these details and received positive confirmations from the shareholders and their respective AOs. The identity, creditworthiness, and genuineness of the transactions were established. The ITAT referred to several precedents, including CIT vs Lovely Export P. Ltd. and CIT vs Oasis Hospitalities (P) Ltd., to conclude that the assessee had discharged its burden. Consequently, the ITAT deleted the addition of Rs. 1,38,00,000.

2. Enhancement of Income by Rs. 94,00,000 by CIT(A):
The CIT(A) enhanced the assessed income by Rs. 94,00,000, attributing unexplained share capital from various parties. The assessee contended that this enhancement was made without proper notice and opportunity for cross-examination. The ITAT observed that the CIT(A) later deleted this enhancement in an order passed under Section 154. The ITAT emphasized that the assessee had established the identity, creditworthiness, and genuineness of the transactions for all shareholders, similar to the detailed analysis of M/s Tek Hire Purchase & Leasing Co. Pvt. Ltd. Therefore, the ITAT deleted the enhancement of Rs. 94,00,000.

3. Legality of the Assessment Order and Jurisdiction:
The assessee argued that the assessment order was beyond jurisdiction, void ab initio, and contrary to law. The ITAT did not find merit in these arguments as the primary issues of unexplained share capital and enhancement were resolved in favor of the assessee based on the evidence provided.

4. Charging of Interest Under Section 234B:
The assessee contested the charging of interest under Section 234B. The ITAT noted that the charging of interest is consequential and directed the AO to recompute the interest, if any, after giving effect to the ITAT's order.

Conclusion:
The ITAT allowed the assessee's appeal, deleting both the addition of Rs. 1,38,00,000 and the enhancement of Rs. 94,00,000 on account of unexplained share capital under Section 68. The ITAT directed the AO to recompute the interest under Section 234B, if applicable, following the deletion of the additions.

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