2015 (10) TMI 1756 - AT - Income Tax

Addition u/s 68 - whether the assessee failed to prove the identity of investors, their creditworthiness/ investments and genuineness of the transaction of capital introduction? - CIT(A) deleted the addition - Held that - As during the course of assessment proceeding, complete details were not available with the Assessing Officer and that is why he has treated share application money as bogus and made the addition of the same. But before the CIT(A) in response to remand report when fresh commission was issued to ADIT(Inv.) Kolkata who in turn issued notice u/s 131 to all shareholders companies and in response thereto replies were filed by all the companies. All the shareholders companies have filed the copy of confirmation, copy of bank statements, copy of audited balance sheet and profit and loss account for the ended year on 31.03.2010 along with reply to the notice u/s 136 of the Act. All these details were available before the CIT(A) while adjudicating the issue and with all these evidence the genuineness of transaction identity and creditworthiness of creditor have been proved. Therefore, we are of the view that since the assessee has discharged its primary onus of proving the genuineness of transaction, identity and creditworthiness of shareholders, the addition u/s 68 of the Act is not called for. The addition cannot be sustained only for the simple reason that these shareholder companies have not responded in first round of commission. The ADIT(Inv.) has initially reported that the parties are not available at given address but in second round of commission the parties have come forward and submitted their requisite reply in order to justify the financial credibilities. In the light of all these facts, we are of the view that the CIT(A) has rightly adjudicated the issue in favour of the assessee.

Summary

Issues Involved:
1. Addition of Rs. 1,60,00,000/- as unexplained credit under Section 68 of the Income Tax Act, 1961.
2. Identity, creditworthiness, and genuineness of the shareholder companies.
3. Compliance with procedural requirements for verification of shareholders.

Issue-wise Detailed Analysis:

1. Addition of Rs. 1,60,00,000/- as Unexplained Credit under Section 68 of the Income Tax Act, 1961:
The Revenue appealed against the order of CIT(A) deleting the addition of Rs. 1,60,00,000/- on account of share application money. The Assessing Officer (AO) had added this amount as unexplained credit under Section 68, arguing that the assessee failed to prove the identity, creditworthiness, and genuineness of the investor companies. The AO noted that the assessee's registered office was in Lucknow, but all the investing companies were based in Kolkata, with multiple companies sharing the same addresses, raising suspicions of shell companies being used to route the assessee's own funds.

2. Identity, Creditworthiness, and Genuineness of the Shareholder Companies:
The AO required the assessee to furnish details such as ITR, PAN, and bank statements of the shareholder companies. Upon verification, letters sent to some companies were returned as "address not known" or "address moved". The AO concluded that the companies were non-existent and the transactions were a device to channelize unaccounted money. The AO issued a commission to the Addl. DIT (Inv.) Kolkata, who confirmed that the companies did not exist at the given addresses, suggesting they were bogus.

However, during the appeal, the assessee provided extensive documentation to the CIT(A), including share application forms, bank statements, audited balance sheets, and income tax returns of the shareholder companies. The CIT(A) found that the assessee had discharged its onus by providing sufficient evidence to establish the identity, creditworthiness, and genuineness of the transactions. The CIT(A) noted that the companies were registered with the Registrar of Companies, held PANs, and were regular income tax assessees.

3. Compliance with Procedural Requirements for Verification of Shareholders:
The CIT(A) called for a remand report from the AO, who issued another commission to the Addl. DIT (Inv.) for further inquiries. The shareholder companies responded with the required documents, confirming their investments. The CIT(A) observed that the AO's initial conclusion was based on incomplete information and that the subsequent compliance by the companies proved their legitimacy. The CIT(A) relied on various judicial precedents, including CIT v. Jaydeep Securities and Finance Ltd. and CIT v. Misra Preservers (P.) Ltd., which supported the view that once the assessee provides sufficient evidence, the burden shifts to the Revenue to disprove it.

Conclusion:
The CIT(A) concluded that the assessee had fully discharged its onus of proving the receipt of share capital with premium from the investor companies. The AO's observations regarding the non-existence of the companies were not justified given the evidence provided. The CIT(A) deleted the addition of Rs. 1,60,00,000/- made by the AO under Section 68, and this decision was upheld by the ITAT, which found no infirmity in the CIT(A)'s order. The appeal of the Revenue was dismissed, confirming the deletion of the addition.

Final Judgment:
The appeal of the Revenue was dismissed, and the order of the CIT(A) deleting the addition of Rs. 1,60,00,000/- under Section 68 of the Income Tax Act, 1961, was upheld. The ITAT confirmed that the assessee had discharged its onus of proving the identity, creditworthiness, and genuineness of the shareholder companies.