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2022 (4) TMI 1507 - AT - Income TaxAddition u/s 68 - Unexplained investors/cash credit - unsecured loan from only the dummy/shell companies who are actually entry operators - no investor was produced by the assessee group which clearly shows that the assessee failed to furnish any documentary evidence regarding the existence of such investors - as per AO mere filing of confirmations from parties does not discharge the onus cast on the assessee - CIT-A deleted addition - HELD THAT - We do not find any infirmity in the order of the Ld. CIT(A) on this issue. First of all the assessee in the instant case has received the share capital and share premium from one Mr. Taranpal Singh Kandhari, one of the shareholder and not a number of companies. We find the assessee during the course of assessment proceedings has filed the following documents to substantiate the identity and creditworthiness of the investor and genuineness of the transaction. We find the A.O. has not found anything adverse on these evidences. A perusal of the details filed by the assessee in the paper book in respect of the above 08 parties who had extended unsecured loan shows that they have sufficient capacity to extend the loan to Mr. Taranpal Singh Kandhari who in turn had invested in the shares of the assessee company. There is no evidence on record to show that the funds of the assessee company has gone to these persons which in turn had come back to the assessee company. Secondly, the A.O. has referred to the statements of Shri Pradeep Kumar Shastri and Shri Varindar Pal Singh Kandhari. However, these statements pertain to M/s. Indogulf Infrastructure and Investment Pvt. Ltd. and M/s. MSG Finance India Pvt. Ltd., and these statements do not have any relevance to the case of the assessee. We, therefore, find merit in the submissions of the Learned Counsel for the Assessee that reference to these statements is infructuous. Thirdly, one of the observations of the A.O. is that the profit declared by the investor companies over the years is negligible and even the turnover declared by the investor companies is not very significant in most of the cases. However, the assessee company has received share capital and share premium only from one individual namely Shri Taranpal Singh Kandhari and, therefore, we find merit in the argument of the Learned Counsel for the Assessee that this observation of the A.O. is infructuous. Even otherwise also the assessee company has filed sufficient details to not only prove the source but the source of the source. We, therefore, hold that addition could not have been made on this issue also. So far as the allegation of the A.O. that the investor was not produced by the assessee group is concerned, the submissions of the Learned Counsel for the Assessee that the A.O. never asked the assessee to produce any investor, could not be controverted by the Ld. D.R. The assessee filed the requisite details in response to summon under section 131 of the I.T. Act, 1961 and the order nowhere speaks that the A.O. had asked the assessee to produce the investor. Valuation under section 11UA of the I.T. Act, 1961 as per Section 56(2)(viib) we find the A.O. has not made any addition on the issue of justification of share premium u/s 56(2)(viib). The addition has been made by the AO u/s 68 of the I.T. Act, 1961. For addition u/s 68, the only requirement is to establish the identity, genuineness and creditworthiness of the investors and not the value of share premium. Therefore, ground no. 5 of the Revenue regarding valuation of shares is only for improvement of the assessment order which in our opinion cannot be permitted. We find in the case of PCIT Vs M/s Pranidhi Holdings Pvt Ltd.. 2018 (4) TMI 403 - DELHI HIGH COURT held that if initial burden of proof stood discharged by assessee and the AO fails to comment upon relevant documents produced before the FAA during appellate proceedings, addition under section 68 of the I.T. Act, 1961 cannot be sustained. Decided in favour of assessee.
Issues Involved:
1. Unexplained cash credit under Section 68 of the IT Act, 1961. 2. Creditworthiness and identity of the investor. 3. Genuineness of the transaction. 4. Valuation of shares and share premium. 5. Procedural aspects regarding the production of investors. Issue-Wise Detailed Analysis: 1. Unexplained Cash Credit under Section 68 of the IT Act, 1961: The AO added Rs. 4,87,99,855/- to the assessee's income under Section 68, citing that the assessee failed to prove the identity and creditworthiness of the investor and the genuineness of the transaction. The CIT(A) deleted this addition, stating that the assessee provided sufficient documents to prove the identity, creditworthiness, and genuineness of the transaction. These documents included Form PAS-3 filed before ROC, confirmation from the investor, bank statements, share application forms, PAN card, and income tax returns of the investor. 2. Creditworthiness and Identity of the Investor: The AO questioned the creditworthiness of Mr. Taranpal Singh Kandhari, who invested Rs. 4.88 crores despite showing a salary income of Rs. 24 lakhs. The CIT(A) noted that the investor had raised unsecured loans amounting to Rs. 4,78,00,000/- from eight parties and had a salary of Rs. 24,00,000/-. The CIT(A) found that the assessee provided sufficient evidence, including confirmations, bank statements, PAN cards, and income tax returns of the loan creditors, proving their capacity to extend the loan. 3. Genuineness of the Transaction: The AO doubted the genuineness of the transaction, citing back-to-back transactions and the lack of investor production. The CIT(A) observed that the AO did not find any adverse evidence against the documents provided by the assessee. The CIT(A) also noted that the statements of Shri Pradeep Kumar Shastri and Shri Varindar Pal Singh Kandhari pertained to other entities and were not relevant to the assessee's case. 4. Valuation of Shares and Share Premium: The AO did not make any addition regarding the justification of the share premium under Section 56(2)(viib). The CIT(A) noted that the valuation of shares was done by M/s H. S. & Associates, Chartered Accountants, and the valuation report justified the premium of Rs. 175/- per share based on the book value as per audited accounts. 5. Procedural Aspects Regarding the Production of Investors: The AO claimed that the investor was not produced by the assessee group. The CIT(A) noted that the AO never asked the assessee to produce the investor and that the investor had filed a detailed reply through his authorized representative in response to the notice under Section 131. Conclusion: The CIT(A) deleted the addition made by the AO under Section 68, finding that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transaction. The CIT(A) also found that the AO did not bring any material on record to disprove the documents filed by the assessee. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal. The Tribunal noted that the assessee had discharged its burden of proof and that the AO's addition was based on mere surmises and conjectures without any substantive evidence.
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