2019 (1) TMI 1948 - AT - Income Tax

Addition u/s 68 - Unexplained share capital along with the share premium - burden of proofs viz. identity of the creditor, his creditworthiness and genuineness of the transaction u/s.68 - CIT-A deleted the addition - HELD THAT - As the net owned funds of each share applicant were several times more than the investment made in equity of the assessee. It is evident that each share applicant had substantial resources of their own compared with the total investible funds available with each share applicants and that investment made in the equity shares and the assessee company was not significant. We note that the AO did not point out any defect or infirmity in the documents placed on record by the assessee as well as the share subscribers. Thus the creditworthiness of the aforesaid share subscribers cannot be disputed. Assessee had produced the aforesaid documents to explain the nature and source of the share capital along with share premium of the four corporate shareholders. We note that the AO had accepted the share capital subscribed by these four corporate entities. However, without pointing out any defects has arbitrarily without giving any reason by a cryptic order has added the entire share premium which was also given by the very same four corporate entities u/s 68 of the Act. The Ld. AR brought to our notice that the similar additions were made by the same very AO in five cases wherein the AO accepted the share capital but added the share premium which action of the AO was not upheld by the Tribunal. As share premium cannot be added in the hands of the assessee u/s. 68 of the Act since the proviso was inserted u/s 68 of the Act only from AY 2013-14 and similar additions made only on share premium was directed to be deleted and which action has been upheld by the Hon ble Bombay High Court in Pr. CIT Vs. Apeak Infotech 2017 (9) TMI 1590 - BOMBAY HIGH COURT - Decided in favour of assessee.

Issues Involved:
1. Validity of addition of share premium as cash credit under Section 68 of the Income Tax Act.
2. Applicability of judicial precedents to the facts of the case.
3. Burden of proof regarding the identity, creditworthiness, and genuineness of transactions.
4. Admissibility of evidence provided by the assessee.
5. Jurisdiction and obligations of the Assessing Officer (AO) and appellate authorities.

Detailed Analysis:

1. Validity of Addition of Share Premium as Cash Credit under Section 68:
The AO added the share premium of ?3,40,31,800/- received by the assessee as cash credit under Section 68 due to the failure to corroborate the high value and creditworthiness of the receipt. The Ld. CIT(A) deleted this addition, prompting the revenue to appeal.

2. Applicability of Judicial Precedents:
The revenue argued that the Ld. CIT(A) wrongly relied on the Supreme Court's decision in CIT vs. Lovely Exports Ltd., which pertains to a public limited company, unlike the private limited company in the present case. The revenue cited various judicial pronouncements, including CIT vs. Mithan International and CIT vs. Rajamandir Estates Pvt. Ltd., to argue that the facts of each case must be considered individually.

3. Burden of Proof:
The revenue emphasized that the burden of proof regarding the identity, creditworthiness, and genuineness of transactions lies with the assessee, citing decisions such as CIT vs. Korlay Trading Co. Ltd., K.M. Sadhukhan and Sons Pvt. Ltd. vs. CIT, and CIT vs. Precision Finance Pvt. Ltd. The AO argued that mere filing of Income Tax File Numbers and other particulars is insufficient without proving the three conditions.

4. Admissibility of Evidence Provided by the Assessee:
The assessee provided extensive documentation to substantiate the share capital and premium, including income tax returns, bank statements, audited financial statements, and PAN details of the share subscribers. The AO, however, did not point out any defects in these documents. The ITAT noted that the share subscriber companies had sufficient capital and reserves, and the transactions were genuine and conducted through banking channels.

5. Jurisdiction and Obligations of the AO and Appellate Authorities:
The ITAT observed that the AO accepted the share capital but arbitrarily added the share premium without pointing out any defects. The ITAT referenced similar cases where the Tribunal deleted such additions, upheld by the Bombay High Court in Pr. CIT vs. Apeak Infotech. The ITAT concluded that the AO's failure to conduct a proper inquiry and the Ld. CIT(A)'s acceptance of the share premium without further scrutiny were improper.

Conclusion:
The ITAT upheld the Ld. CIT(A)'s order, dismissing the revenue's appeal. The Tribunal emphasized that the assessee had discharged the onus of proving the identity, creditworthiness, and genuineness of the share subscribers. The AO's addition of the share premium as cash credit under Section 68 was found to be unjustified, especially in light of similar judicial precedents and the comprehensive evidence provided by the assessee. The appeal of the revenue was dismissed, and the order was pronounced in the open court on 9th January 2019.

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