2016 (2) TMI 742 - AT - Income Tax

Addition u/s 68 - receipt of equity share capital , preference share capital and preference share application money - Held that - We find that the assessee had given the complete details about the share applicants clearly establishing their identity , creditworthiness and genuineness of transaction proved beyond doubt and had duly discharged its onus in full. Nothing prevented the Learned AO to make enquiries from the assessing officers of the concerned share applicants for which every details were very much made available to him by the assessee. We find that the reliance placed by the Learned CITA on the decision of the Hon ble Apex Court in the case of CIT vs Lovely Exports (P) Ltd reported in (2008 (1) TMI 575 - SUPREME COURT OF INDIA ) is very well founded, wherein, it has been very clearly held that the only obligation of the company receiving the share application money is to prove the existence of the shareholders and for which the assessee had discharged the onus of proving their existence and also the source of share application money received. - Decided against revenue

Summary

Issues:
- Addition u/s 68 of the Income Tax Act in the hands of the assessee company regarding receipt of equity share capital, preference share capital, and preference share application money totaling to Rs. 60,00,000.

Analysis:
The only issue in this appeal was whether the addition made u/s 68 of the Income Tax Act in the hands of the assessee company regarding the receipt of share capital was justified. The assessee company, engaged in poultry farming, raised equity share capital, preference share capital, and advance preference share capital during the assessment year. The Assessing Officer (AO) added these amounts as unexplained cash credits u/s 68 of the Act, questioning the identity and creditworthiness of the share applicants.

The assessee contended that all details of share applicants were provided, emphasizing that most subscribers were rural agriculturists with no taxable income. The share applicants confirmed their contributions, with some physically meeting the AO. The assessee complied with legal formalities, filing necessary forms with the Registrar of Companies. The CIT(A) deleted the additions u/s 68, citing the burden of proving shareholder existence was met, referencing the decision in CIT vs Lovely Exports Pvt Ltd. The revenue appealed, arguing lack of verification of share subscribers.

The ITAT Kolkata upheld the CIT(A)'s decision, noting the assessee established the identity, creditworthiness, and genuineness of transactions. Referring to the decision in CIT vs Lovely Exports Pvt Ltd and a similar case in the Calcutta High Court, the ITAT dismissed the revenue's appeal. The Delhi High Court decision in CIT vs Value Capital Services P Ltd further supported the stance that no addition could be made without proof of funds emanating from the assessee. The ITAT concluded that setting aside the issue for further verification would be futile, affirming the CIT(A)'s order and dismissing the revenue's appeal.