2019 (6) TMI 1651 - AT - Income Tax

Addition u/s 68 - unexplained share capital - Non discharge of burden of proofs viz. identity of the creditor, his creditworthiness and genuineness of the transaction - 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. Addition of share premium as unexplained cash credit under Section 68 of the Income-tax Act, 1961.
2. Burden of proof regarding identity, creditworthiness, and genuineness of transactions.
3. Compliance with statutory notices and production of directors.
4. Judicial precedents and their applicability.

Detailed Analysis:

1. Addition of Share Premium as Unexplained Cash Credit:
The primary issue is whether the share premium received by the assessee should be added as unexplained cash credit under Section 68 of the Income-tax Act, 1961. The Assessing Officer (AO) noted that the assessee raised capital at a high share premium but failed to corroborate the creditworthiness of the receipt. Consequently, the AO added ?1,24,31,250 as unexplained cash credit. The CIT(A) upheld this addition, leading the assessee to appeal.

2. Burden of Proof Regarding Identity, Creditworthiness, and Genuineness of Transactions:
The assessee argued that the identity, genuineness, and creditworthiness of the nine corporate entities investing in the share capital were proven through documents filed. These included income tax returns, bank statements, audited financial statements, PAN, and addresses of share subscribers. Despite this, the AO and CIT(A) dismissed the evidence, leading to the addition under Section 68. The Tribunal noted that the share subscribers were regularly assessed to tax, payments were made through banking channels, and requisite documents were furnished, thus proving identity, genuineness, and creditworthiness.

3. Compliance with Statutory Notices and Production of Directors:
The AO issued summons to the directors of the assessee company and the share subscribing companies, which were not complied with. The Tribunal observed that the assessee had filed substantial documentary evidence to substantiate the share capital and premium. The failure to produce directors alone was deemed insufficient for addition under Section 68, as held in the case of CIT vs. Orissa Corporation Pvt. Ltd. (159 ITR 78 SC).

4. Judicial Precedents and Their Applicability:
The Tribunal referred to several judicial precedents, including CIT vs. Korlay Trading Co. Ltd., CIT vs. Precision Finance Pvt. Ltd., and CIT vs. Navodaya Castles Pvt. Ltd., which emphasize the necessity for the assessee to prove the identity, creditworthiness, and genuineness of transactions. However, the Tribunal found that the AO did not point out any defect or infirmity in the documents provided by the assessee. The Tribunal also relied on the decision in Trend Infra Developers Pvt. Ltd., where similar additions were deleted, and the Bombay High Court's decision in Pr. CIT vs. Apeak Infotech, which held that share premium could not be added under Section 68 for AY 2012-13 as the proviso was inserted only from AY 2013-14.

Conclusion:
The Tribunal concluded that the assessee had discharged the onus of proving the identity, creditworthiness, and genuineness of the share subscribers. The AO's addition of share premium as unexplained cash credit was not sustainable. The Tribunal allowed the appeal of the assessee and directed the deletion of the addition of the share premium. The order was pronounced on 14.06.2019.

← Previous Next →