2018 (10) TMI 1688 - AT - Income Tax

Addition on account of share capital u/s.68 - genuineness of the loan and was received and repaid by the assessee by account payee cheque establish the identity of creditworthiness complete address GIT No. / PAN confirmation along with copy of assessment order available - HELD THAT - In the case of assessee all the details have been furnished by the assessee and transaction account payee cheque and investors have been appeared before the A.O. and whose complete address copy of acknowledgement of return and balance sheet have been filed and the transactions reflected in the balance sheet therefore the addition made by the A.O. is not sustainable in law in the light of above documentary evidences and where the assessee has provided all the details of investors and who have personally appeared before the A.O. the addition made was not justified in law. We are of the considered opinion that the addition is not sustainable in law and same is directed to be deleted. - Decided in favour of assessee.

Issues Involved:
1. Confirmation of addition of Rs. 1,44,15,000/- under Section 68 of the Income Tax Act, 1961.
2. Verification of identity, creditworthiness, and genuineness of share applicants.
3. Treatment of share capital as unexplained cash credit.
4. Adherence to legal formalities and submission of evidence by the assessee.
5. Evaluation of remand report and statements recorded under Section 131 of the Act.

Issue-wise Detailed Analysis:

1. Confirmation of Addition of Rs. 1,44,15,000/- under Section 68 of the Income Tax Act, 1961:
The primary issue revolves around the confirmation of an addition of Rs. 1,44,15,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, which pertains to unexplained cash credits. The assessee received share application money from 31 parties, and the AO questioned the identity, creditworthiness, and genuineness of these transactions. The AO treated the share application money as unexplained cash credit due to the inability of the assessee to satisfactorily prove the creditworthiness and genuineness of the transactions.

2. Verification of Identity, Creditworthiness, and Genuineness of Share Applicants:
The AO issued notices under Section 133(6) to various parties and summons under Section 131 to others. Some parties did not respond, and others provided documents that raised doubts about their creditworthiness. The AO noted that many bank accounts showed deposits just before the issuance of cheques for investment, raising suspicions about the genuineness of the transactions. Despite the assessee providing documents such as return acknowledgements, balance sheets, and bank statements, the AO was not satisfied with the evidence.

3. Treatment of Share Capital as Unexplained Cash Credit:
The AO treated the share capital received from various investors as unexplained cash credit under Section 68, arguing that the creditworthiness and genuineness of the transactions were not established. The AO's decision was based on the observation that the bank accounts of the investors showed deposits just before the issuance of cheques, implying that the funds might not be genuinely theirs.

4. Adherence to Legal Formalities and Submission of Evidence by the Assessee:
The assessee argued that all legal formalities were complied with, and sufficient evidence was provided to prove the identity, creditworthiness, and genuineness of the investors. The assessee submitted various documents, including return acknowledgements, balance sheets, profit and loss accounts, and bank statements. The assessee also claimed that many investors personally appeared before the AO and confirmed their investments.

5. Evaluation of Remand Report and Statements Recorded under Section 131 of the Act:
During the remand proceedings, the AO recorded statements from several investors under Section 131. However, the AO found that some investors were unaware of their investments, and others had low incomes, raising doubts about their creditworthiness. The CIT(A) upheld the AO's decision, arguing that the transactions appeared to be pre-arranged and not genuine. The CIT(A) concluded that the share capital contributions were part of a money laundering scheme and confirmed the addition made by the AO.

Tribunal's Findings:
The Tribunal found that the assessee had sufficiently discharged its burden of proving the identity, creditworthiness, and genuineness of the share applicants. The Tribunal noted that 27 out of 31 investors appeared before the AO, and their statements were recorded. The Tribunal observed that the investments were made through account payee cheques, and there were no cash deposits before the issuance of cheques. The Tribunal relied on various judicial precedents, including the decisions in CIT vs. Lovely Exports Pvt. Ltd. and CIT vs. Steller Investment Ltd., to conclude that the addition made by the AO was not justified.

Conclusion:
The Tribunal held that the addition of Rs. 1,44,15,000/- under Section 68 was not sustainable in law as the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the share applicants. The Tribunal directed the deletion of the addition and allowed the appeal in favor of the assessee.

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