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2021 (11) TMI 1106 - AT - Income TaxAddition u/s 68 - assessee company has received share premium and the shareholders were not found at their respective addresses and the assessee could not produce the directors of the investor companies - assessments u/s 143(3) of the Act of the share subscriber companies were completed - CIT-A deleted the addition - HELD THAT - We find from the various details furnished by the assessee in the paper book that it has filed the master data of all the investor companies as downloaded from the MCA website, therefore, we find merit in the argument of the ld. Counsel that the Revenue cannot allege that the investor companies are bogus when the assessments u/s 143(3) of the Act of the subscriber companies were completed by the Income-tax Department during the same period. The entire amount had been received by the assessee company through normal banking channel by account payee cheques or demand drafts, majority of the investment companies are assessed u/s 143(3) of the Act and nothing was brought on record by the Revenue that either these orders were subject to reopening u/s 147 or set aside u/s 263 of the IT act. It is also to be noted that this is the first year of incorporation of the company and, therefore, it cannot be said that the assessee company has brought in its own unaccounted funds through these investor companies as bogus share capital or share premium. Further, it has been held in various decisions relied on by ld. Counsel that when identity, credit worthiness and genuineness of the transaction is not in doubt, then, addition cannot be made just because the assessee could not produce the directors of the subscriber companies or when the share applicants were not found at their addresses. Once genuineness, credit worthiness and identity of investors are established and whose assessments were completed u/s 143(3) at almost the same time, then, no addition can be made on account of unexplained share capital/premium. In this view of the matter and in view of the detailed reasoning given by the ld.CIT(A) while deleting the addition, we do not find any infirmity in his order - Decided in favour of assessee.
Issues Involved:
1. Whether the addition of Rs. 10,15,00,000/- made by the AO on account of unexplained share premium and share capital under Section 68 of the Income Tax Act, 1961 was justified. 2. Whether the identity, creditworthiness, and genuineness of the transactions of the investor companies were established. 3. Whether the reliance on the decision of the Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd. was appropriate. 4. Whether the non-production of directors of the investor companies and the non-existence of companies at their given addresses invalidate the transactions. Detailed Analysis: 1. Addition under Section 68: The AO made an addition of Rs. 10,15,00,000/- under Section 68 of the Income Tax Act, 1961, stating that the assessee company received share premium of Rs. 90/- each at face value of Rs. 10/- on 10,15,000 shares from 19 companies. The AO argued that the shareholders were not found at their respective addresses, and the assessee failed to produce the directors of the investor companies. The CIT(A) deleted this addition, stating that the assessee had provided sufficient evidence to establish the identity, creditworthiness, and genuineness of the transactions. The Tribunal upheld the CIT(A)'s decision, noting that the investor companies were assessed under Section 143(3) by the concerned AOs during the same period, and there was no evidence of these orders being reopened or set aside. 2. Identity, Creditworthiness, and Genuineness of Transactions: The CIT(A) found that the assessee provided required documents such as copies of ITR, final accounts, and bank statements to establish the identity and creditworthiness of the subscriber companies. The assessee argued that the investing companies were duly incorporated under the Companies Act, 1956, and continued to exist in the records of the ROC and Income Tax Department. The Tribunal noted that the AO had not brought any evidence to dispute the genuineness of the transactions, and the assessments of the investor companies under Section 143(3) supported the assessee's claim. The Tribunal also noted that the entire amount was received through normal banking channels by account payee cheques or demand drafts. 3. Reliance on Lovely Exports Pvt. Ltd.: The CIT(A) relied on the decision of the Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd., which held that if the share application money is received from alleged bogus shareholders whose names are given to the AO, the Department is free to reopen their individual assessments. The Tribunal upheld this reliance, noting that the AO had not provided any evidence to dispute the identity, creditworthiness, and genuineness of the transactions, and the assessments of the investor companies under Section 143(3) supported the assessee's claim. 4. Non-production of Directors and Non-existence of Companies: The AO argued that the assessee failed to produce the directors of the investor companies and that the companies were not found at their given addresses. The CIT(A) noted that the assessee had no legal rights over the investors to enforce their attendance and that the AO was legally competent to compel and ensure the attendance of the investing companies under Section 131. The Tribunal upheld this view, noting that the AO had not brought any evidence to dispute the genuineness of the transactions and that the assessments of the investor companies under Section 143(3) supported the assessee's claim. The Tribunal also noted that the non-production of directors and the non-existence of companies at their given addresses did not invalidate the transactions, as the entire amount was received through normal banking channels. Conclusion: The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 10,15,00,000/- made by the AO under Section 68 of the Income Tax Act, 1961. The Tribunal found that the assessee had provided sufficient evidence to establish the identity, creditworthiness, and genuineness of the transactions, and that the AO had not brought any evidence to dispute these claims. The Tribunal also noted that the assessments of the investor companies under Section 143(3) supported the assessee's claim, and that the non-production of directors and the non-existence of companies at their given addresses did not invalidate the transactions.
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