2015 (10) TMI 2011 - AT - Income Tax

Addition under section 68 - unexplained share application money - CIT(A) deleted the addition - Held that - CIT(A) granted relief to the assessee on the basis of remand report of the AO and other relevant and supportive evidence and documents and the CIT(A) also considered surrounding circumstances and correctly reached to a conclusion that the CIT(A) has discharged its onus cast upon him u/s 68 of the Act by establishing the identity of the investors, along with their creditworthiness and genuineness of the transaction. We may also point out that the case of the assessee was selected for scrutiny through CASS and it is not the case of scrutiny at the instance of Investigation Wing or any other revenue intelligence agency. Finally, respectfully following the ratio of the decision of Allahabad High Court in the case of CIT vs M/s Kaiser Construction & Engineers (2013 (2) TMI 701 - ITAT AGRA) about the acceptability and reliability of the remand report favoring the assessee and judgment of Hon ble Supreme Court in the case of CIT vs Lovely Export (P) Ltd. (2008 (1) TMI 575 - SUPREME COURT OF INDIA) and CIT vs Anshika Consultants Pvt. Ltd. (2015 (4) TMI 842 - DELHI HIGH COURT), we have no hesitation to hold that in the extant case the identity of the investors, genuineness of the transaction and the creditworthiness of the share applicants have been established by the assessee by way of submission of particulars of the share applicants along with copies of the balance sheets, statement of bank account, income tax reports and PAN details etc. and the onus was shifted on the AO to demolish these supportive evidence and documents. AO himself in his remand report dated 23.5.11 concluded that all the share applicants are existing assesses and the contention/explanation in regard to the impugned contribution appears to be correct - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act, 1961.
2. Genuineness and creditworthiness of share application money.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68 of the Income Tax Act, 1961:
The Revenue challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)] who deleted the addition of Rs. 1,59,00,000 made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961. The AO had added this amount as unexplained share application money, asserting that the assessee failed to prove the genuineness and creditworthiness of the share applicants during the assessment.

2. Genuineness and Creditworthiness of Share Application Money:
The assessee, a closely held company engaged in manufacturing and marketing pesticides, introduced share capital of Rs. 1,59,00,000 during the assessment year 2008-09. The AO scrutinized the details, including names, addresses, PAN, and bank passbooks of the investors. Notices were issued to randomly selected investors, and the AO observed that many accounts were introduced by a single person and some investors had very little means. Consequently, the AO concluded that the assessee failed to prove the creditworthiness of the investors and added the entire amount under Section 68.

Appeal to CIT(A):
The assessee appealed to the CIT(A), explaining that the bank accounts were opened by the bank officers to meet their targets, not by a single person. It was also contended that a significant portion of the share capital was received from the encashment of loans and fixed deposits with the assessee company. The CIT(A) called for a remand report, and the AO reiterated the initial findings. However, after examining additional evidence and summoning the remaining investors, the AO admitted the genuineness of the investors in the remand report.

CIT(A)'s Findings:
The CIT(A) concluded that the disallowance of Rs. 1,59,00,000 was not justified. The CIT(A) noted that the AO, in the remand report, confirmed the identity, creditworthiness, and genuineness of the transactions. The CIT(A) observed that the share applicants were regular taxpayers, and the investments were made through banking channels, thereby establishing the onus of the assessee under Section 68.

ITAT's Analysis:
The Income Tax Appellate Tribunal (ITAT) examined the arguments and evidence. It noted that the AO, in the remand proceedings, accepted the genuineness of the investors and the transactions. The ITAT upheld the CIT(A)'s order, emphasizing that the identity, creditworthiness, and genuineness of the transactions were established. The ITAT referenced the decisions of higher courts, including the Supreme Court and High Courts, which supported the assessee's position.

Conclusion:
The ITAT dismissed the Revenue's appeal, affirming that the assessee had discharged its burden of proving the genuineness of the share application money. The AO's remand report and the CIT(A)'s detailed examination of the evidence were critical in reaching this conclusion. The ITAT reiterated that the identity, creditworthiness, and genuineness of the share applicants were satisfactorily established, and the addition under Section 68 was not warranted.