2018 (10) TMI 1661 - AT - Income Tax

Addition u/s. 68 - addition on share subscription money received - Proof of identity, creditworthiness and genuineness of the share applicants - HELD THAT - Section 68 provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature & source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO s record. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. No addition was warranted under Section 68. Therefore, we do not want to interfere in the impugned order of CIT(A). - Decided against revenue.

Issues Involved:

1. Deletion of addition made by the AO under Section 68 of the Income Tax Act regarding share subscription money.
2. Identity, creditworthiness, and genuineness of share subscribers.
3. Justification for issuing shares at a high premium.
4. Non-appearance of share applicants before the AO.
5. Application of judicial precedents and legal principles under Section 68.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68:
The primary issue is the deletion of the addition made by the AO under Section 68 concerning the share subscription money received by the assessee company. The AO had added back the share capital and premium totaling ?5,00,00,000 as unexplained cash credit, citing non-appearance of share applicants and doubts about their creditworthiness. The CIT(A) deleted this addition, leading to the Revenue's appeal.

2. Identity, Creditworthiness, and Genuineness of Share Subscribers:
The assessee provided comprehensive documentation to establish the identity, creditworthiness, and genuineness of the share subscribers. This included PAN details, bank statements, audited financial statements, income tax returns, board resolutions, and professional tax enrollment certificates. The share applicants were regular income tax assessees with substantial capital and reserves. The transactions were conducted through proper banking channels without any cash deposits, and the share applicants confirmed the transactions with the assessee.

3. Justification for Issuing Shares at a High Premium:
The AO questioned the high premium charged on the shares but did not dispute the detailed justification provided by the assessee. The CIT(A) also addressed this aspect, noting that the assessee had demonstrated substantial growth in turnover, profit, and EPS, justifying the premium. The AO did not find any fault with the explanation provided by the assessee.

4. Non-Appearance of Share Applicants:
The AO's addition was primarily based on the non-appearance of the share applicants. However, the Tribunal noted that the documents required by the AO to examine the transactions were provided, and the identity and creditworthiness of the share applicants were established through documentary evidence. Judicial precedents, such as the Supreme Court's decision in CIT v. Orissa Corporation (P) Ltd., support the view that non-appearance alone cannot be a ground for treating the transactions as non-genuine.

5. Application of Judicial Precedents and Legal Principles under Section 68:
The Tribunal referred to several judicial precedents, including the Supreme Court's decisions in CIT v. Lovely Exports Pvt. Ltd. and CIT v. Smt. P. K. Noorjahan, to emphasize that the onus shifts to the Revenue once the assessee provides prima facie evidence of the identity, creditworthiness, and genuineness of the transactions. The Tribunal also highlighted that the AO did not conduct any further inquiries or gather evidence to disprove the material furnished by the assessee.

Conclusion:
The Tribunal upheld the CIT(A)'s order deleting the addition made under Section 68, finding that the assessee had discharged its burden of proof regarding the identity, creditworthiness, and genuineness of the share subscribers. The AO's addition was based on mere suspicion and conjecture without any substantive material. The Tribunal emphasized the need for the AO to conduct proper inquiries and gather evidence before making such additions. The appeal of the Revenue was dismissed.

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