2012 (8) TMI 1210 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition u/s 68 of the I.T. Act, 1961 for unexplained share money and loans.
2. Examination of identity, creditworthiness, and genuineness of transactions.
3. Status of the company as Private Limited or Limited.
4. Applicability of section 68 before the commencement of business.

Summary:

1. Deletion of Addition u/s 68:
The Revenue appealed against the CIT(A)'s order deleting an addition of Rs.1,04,73,000/- made u/s 68 of the I.T. Act, 1961, which included unexplained share money and loans. The AO had added Rs.79,22,000/- as unexplained share money and Rs.25,51,000/- as unexplained loans, totaling Rs.1,04,73,000/-.

2. Examination of Identity, Creditworthiness, and Genuineness:
The AO questioned the identity, creditworthiness, and genuineness of the transactions. The AO examined a few shareholders and found discrepancies in their capacity to invest. However, the CIT(A) noted that the shareholders and lenders were agriculturists with sufficient documentation to prove their identity and transactions. The CIT(A) found that the AO did not refute the evidence provided by the assessee, such as ration cards, Kisan Bahis, bank statements, and affidavits.

3. Status of the Company:
The Revenue argued about the company's status, suggesting it was not a Private Limited Company. However, the assessee clarified that it was initially a Private Limited Company converted into a Limited Company, and necessary filings were made with the ROC. The tribunal found no merit in the Revenue's submission.

4. Applicability of Section 68 Before Commencement of Business:
The assessee argued that the addition u/s 68 was unjustified as the company was in the formation stage and had not commenced business activities. The tribunal referred to the Apex Court's decision in CIT vs. Bharat Engineering & Construction Company, 83 ITR 187, which held that amounts received before the commencement of business could not be added as business income.

Conclusion:
The tribunal upheld the CIT(A)'s order, confirming that the assessee had discharged the burden of proof regarding the identity, creditworthiness, and genuineness of the transactions. The tribunal dismissed the Revenue's appeal, stating that the addition u/s 68 was not sustainable based on the evidence provided and the legal precedents cited.