2019 (2) TMI 1923 - AT - Income Tax

Addition u/s 68 - Appellant Company had not discharged its onus with respect to justification of credit received as share application/ share premium money - HELD THAT - In this case, the share application money along with premium was received through banking channel . The details of the bank account of the investor have been duly supplied. Even the source of funds of the Investor is also explained. The income tax returns of the investor are also furnished. The investor companies have been duly registered under the Indian Companies Act and there is no evidence on file that their registration has been cancel led or that the investor companies have been declared as nonexistent or shell companies. In response to summons issued by the DDIT (Inv) , Kolkata, investor companies duly filed al l the details and duly confirmed that they had invested in the shares of the assessee company. The only reason for which the aforesaid investment has been disbelieved by the Assessing Officer is on the ground that the Inspector of the Income tax at Kolkata had reported that the aforesaid companies could not be traced out at the given address - we find from the record that the assessee company has furnished the bank details of the investor companies. The address on the existence of the said companies could have been verified from the account opening forms etc. it is in the common knowledge that the accounts are opened in the bank through introducers who approve that the account holder is known to him / her and is genuine. Enquiries could have been made from the said introducers also. There is voluminous record placed on the file such as share application forms, share certificates, bank accounts statements, confirmation from the investors, certificate of incorporation of the said companies, directors report , auditors report and balance sheets etc. So far as the question as to why the said investment company would investigate the assessee company, that in our view, is the internal / market decision of the said investor company and that cannot be a basis for holding that the said investor is bogus. So far as the observation that the investor companies were running into losses, the Ld. Counsel for the assessee in this respect has demonstrated from the balance sheet , that as on the date of investment, the said companies were having huge surpluses, which were sufficient to make the aforesaid investment. Under the circumstances, the sole report of the Inspector that he could not trace the companies, which has been submit ted in the back of the assessee without any opportunity to the assessee to confront the same, is not sufficient to hold that the aforesaid transactions were bogus. Moreover , there is no evidence on the file that the amounts invested by the aforesaid companies was the own money of the assessee. - Decided in favour of assessee.

Issues Involved:
1. Justification of addition of ?75,00,000 under Section 68 of the Income Tax Act, 1961.
2. Whether the assessee discharged its onus to prove the identity, creditworthiness, and genuineness of transactions regarding the share capital/share premium received.

Issue-Wise Detailed Analysis:

1. Justification of Addition under Section 68:

The Assessing Officer (AO) added ?75,00,000 to the income of the assessee company under Section 68, treating the share capital/share premium received from M/s Lawa Marketing Pvt. Ltd. and M/s Pansy Dealer Pvt. Ltd. as income from undisclosed sources. The AO's decision was based on the inability to verify the identity, creditworthiness, and genuineness of the transactions with these companies. The AO noted that the companies could not be located at their given addresses, declared nominal income, and had substantial amounts transferred into their accounts before issuing cheques to the assessee.

2. Discharge of Onus by the Assessee:

The assessee argued that it had provided sufficient documentary evidence to establish the identity and creditworthiness of the investor companies and the genuineness of the transactions. The documents included copies of PAN cards, bank statements, income tax returns, share application forms, share transfer forms, and confirmation letters from the investor companies. The assessee also contended that the transactions were conducted through proper banking channels, and no material was placed on record by the AO to contradict the veracity of the documents furnished.

Detailed Analysis:

Assessing Officer's Observations:
- The AO observed that the investor companies were not found at their respective addresses by the Inspector of Income Tax, Kolkata.
- The AO concluded that the companies were non-existent and created to provide accommodation entries.
- The AO emphasized that the assessee failed to produce the directors of the investor companies for verification.
- The AO relied on various judicial pronouncements to support the addition under Section 68.

Assessee's Submissions:
- The assessee provided detailed submissions and documents to prove the identity, creditworthiness, and genuineness of the investor companies.
- The assessee highlighted that the share application money was received through banking channels and supported by documentary evidence.
- The assessee argued that it was not required to prove the source of the source of the funds received.
- The assessee cited several judicial pronouncements to support its contention that the burden of proof was discharged by providing the necessary documents.

CIT(A)'s Findings:
- The CIT(A) upheld the AO's addition, stating that the assessee failed to establish the identity, creditworthiness, and genuineness of the transactions.
- The CIT(A) noted that the investor companies did not exist at their given addresses and were believed to be paper companies.
- The CIT(A) relied on judicial pronouncements to support the view that mere production of documents was insufficient without credible and verifiable information.

Tribunal's Decision:
- The Tribunal considered the submissions and documents provided by the assessee, including application forms, bank statements, PAN cards, income tax returns, and confirmation letters.
- The Tribunal noted that the assessee had made efforts to produce the necessary documents and requested the AO to summon the directors of the investor companies.
- The Tribunal found that the share application money was received through banking channels and the source of funds was explained.
- The Tribunal observed that the AO's reliance on the Inspector's report, without giving the assessee an opportunity to confront it, was insufficient to hold the transactions as bogus.
- The Tribunal concluded that the assessee had discharged its onus to prove the identity, creditworthiness, and genuineness of the transactions and deleted the addition of ?75,00,000.

Conclusion:
The Tribunal allowed the appeal of the assessee, setting aside the addition made by the AO under Section 68. The Tribunal held that the assessee had provided sufficient evidence to establish the identity, creditworthiness, and genuineness of the transactions, and the AO's decision was based on presumptions and insufficient verification.

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