2019 (2) TMI 2072 - AT - Income Tax

Addition u/s 68 - share capital received at a premium unexplained - addition was made by the AO as there was no compliance from the assessee - identity, genuineness and the creditworthiness of the share applicant companies have not been established and the reasons for investment in this company that has no track record and that too with huge premium is not clarified - CIT-A deleted the addition assessee has responded to the notice of the Assessing Officer and filed documents giving full details of each of the 16 share applicant companies who had subscribed to the share capital as well as share premium money raised by the assessee - HELD THAT - A perusal of the statement of profit and loss account and balance sheet of the assessee company demonstrates that the revenues from operation was Rs.33,40,000/- for the impugned Assessment Year and other income was Rs.8,92,279/-. The assessee incurred substantial expenditure towards employee s benefits, depreciation etc. It has fixed assets worth Rs.62,36,839/-. It is in the business of transport. Hence the test to be applied for such companies, in our considered opinion is not the same as that which is to be applied in case of a jamakharchi company or a company on paper which has net worth and no transactions or real asset base. The creditworthiness of these share applicant companies is not in doubt. As far as the identity of these share applicant companies are concerned, the assessee has furnished the following details before the Assessing Officer in case of each of these companies as Share applications, ITR Acknowledgements, Audited Financial Statements, Relevant bank details and Allotment advices It is well settled that merely because the directors of the share applicant companies did not appear before the Assessing Officer, the addition could not be made - We find that the revenue has not brought out any evidence to controvert the findings of the ld. CIT(A). We find no infirmity in the order of the ld. CIT(A) and uphold the same. - Decided against revenue.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act, 1961.
2. Identity, genuineness, and creditworthiness of share applicant companies.
3. Compliance with the Assessing Officer's summons.
4. Applicability of the 1st proviso to Section 68 of the Act for Assessment Year 2012-13.

Issue-wise Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act, 1961:
The core issue revolves around the addition of Rs. 1,76,62,580/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, which pertains to unexplained cash credits. The AO's addition was based on the non-compliance of the assessee in proving the identity, genuineness, and creditworthiness of the share applicant companies. The AO relied on the preponderance of probabilities and concluded that the reasons for investment in the assessee company, which had no significant track record, were not clarified.

2. Identity, genuineness, and creditworthiness of share applicant companies:
The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition by holding that the assessee had provided full details of each of the 16 share applicant companies, including their share capital and reserves, which were far higher than the investment made in the assessee company. The CIT(A) noted that the investment percentages ranged from 0.01% to 0.03%, except for one case at 0.20%. The CIT(A) concluded that the creditworthiness of the share applicant companies was proven. Additionally, the CIT(A) observed that the assessee had furnished necessary documents such as PAN copies, income-tax returns, annual accounts, audited financial statements, and bank details, thereby establishing the identity and genuineness of the transactions.

3. Compliance with the Assessing Officer's summons:
The AO had issued summons under Section 131 of the Act to the directors of the share applicant companies, which were not complied with. However, the CIT(A) held that the assessee could not compel the directors of the share applicant companies to appear before the AO. The CIT(A) emphasized that merely because the directors did not appear in person, the addition could not be justified. The CIT(A) referred to several judicial precedents, including decisions from the jurisdictional High Court, which supported the view that non-appearance of directors does not invalidate the documentary evidence provided.

4. Applicability of the 1st proviso to Section 68 of the Act for Assessment Year 2012-13:
The CIT(A) noted that the 1st proviso to Section 68, which deals with share premium, is applicable from the Assessment Year 2013-14 and not for the Assessment Year 2012-13. Therefore, the hefty share premium received by the assessee could not be a ground for addition under Section 68 for the relevant assessment year.

Conclusion:
The Income Tax Appellate Tribunal (ITAT) upheld the findings of the CIT(A), stating that the revenue had not provided any evidence to contradict the CIT(A)'s conclusions. The ITAT agreed that the assessee had adequately demonstrated the identity, creditworthiness, and genuineness of the share applicant companies. The ITAT also concurred that the non-appearance of directors before the AO could not be a valid reason for making the addition. Consequently, the appeal of the revenue was dismissed.

Judgment:
The appeal filed by the revenue was dismissed, and the order of the CIT(A) deleting the addition of Rs. 1,76,00,000/- under Section 68 was upheld. The ITAT found no infirmity in the CIT(A)'s order and concluded that the addition was not justified in the circumstances.