2022 (1) TMI 1378 - AT - Income Tax

Addition u/s 68 - Identity, genuineness and creditworthiness in respect of money received in its books of accounts not proved - main plank on which the assessing officer made the addition was because the directors of the share subscribers did not turn up before him - CIT-A deleted the addition - HELD THAT - There is no finding of involvement of any entry provider or hawala operator. M/s Anushka Soft-Tel Pvt. Limited is not found to be-part of any group of Companies floated by any entry provider. A detailed interrogation was conducted by the assessing officer and the director of M/s Anushka Soft-Tel Pvt. Limited has answered all the questions, which show that the director is having full knowledge of operations of M/s Anushka Soft-Tel Pvt. Limited as well as the assessee-company. The director is not a name lender as generally happens in the case of dummy companies and Shell Company. The statement of the director has not been rebutted or discredited by the assessing officer. The assessing officer has not made reference to FT TR nor has he made any investigation / inquiry, in this case. The documents filed reflect that SWEI Inc, is a Company having substantial operating revenues and it has enough shareholders equity to make investment in assessee-company. Documents also show that the investment has been made through a proper channel of foreign remittances and by following due procedure under FCGPR. The same is also reflected in the balance sheet of M/s SWEI Inc. The assessing officer has not given any contrary finding on any of the documents / details filed. The assessing officer has made addition only in respect of two companies. The assessee has filed basic relevant documents at assessment stage and wherever the Assessing Officer has issued notices, they are complied with and investigations/ examination of director has not thrown up any contrary fact. All the share applicants are (i) income tax assessee s, (ii) they are filing their return of income, (iii) the share application form and allotment letter is available on record, (iv) the share application money was made by account payee cheques, (v) the details of the bank accounts belonging to the share applicants and their bank statements, (vi) in none of the transactions the assessing officer found deposit in cash before issuing cheques to the assessee company, (vii) the applicants are having substantial creditworthiness which is represented by a capital and reserve as noted above. We are not inclined to accept the contention of the AO in any manner and hence the addition so made by assessing officer has been rightly deleted by ld CIT(A) by passing a reasoned and speaking order. That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. Decided in favour of assessee.

Issues Involved:

1. Deletion of addition made under Section 68 of the Income Tax Act.
2. Failure to produce directors of investor companies.
3. Creditworthiness and genuineness of investor companies.
4. Justification of the CIT(A)'s order.
5. Restoration of the Assessing Officer's order.

Detailed Analysis:

1. Deletion of Addition Made Under Section 68 of the Income Tax Act:

The Revenue challenged the deletion of the addition made under Section 68 amounting to Rs. 30,27,80,000/-. The Assessing Officer (AO) had added this amount as unexplained cash credits, questioning the identity, genuineness, and creditworthiness of the share application money received by the assessee from two companies, M/s Anushka Soft-Tel Pvt. Ltd. and M/s Sunny Wisdom Enterprise Inc. The CIT(A) deleted the addition, accepting the evidence provided by the assessee, such as bank statements, balance sheets, and income tax returns of the investor companies, which established the identity, creditworthiness, and genuineness of the transactions.

2. Failure to Produce Directors of Investor Companies:

The AO noted that the assessee failed to produce the directors of the investor companies, M/s Kuber Metals Pvt. Ltd. and M/s Sunny Wisdom Enterprise Inc., for verification. However, the director of M/s Anushka Soft-Tel Pvt. Ltd. did appear before the AO and provided detailed statements. The CIT(A) considered the compliance with notices under Section 133(6) by the investor companies and the detailed interrogation of the director of M/s Anushka Soft-Tel Pvt. Ltd. as sufficient to establish the genuineness of the transactions.

3. Creditworthiness and Genuineness of Investor Companies:

The AO questioned the creditworthiness of M/s Anushka Soft-Tel Pvt. Ltd., noting that it had no significant business activity and minimal income. However, the CIT(A) observed that the company had substantial shareholders' equity and was engaged in investment activities. The AO's findings were deemed factually incorrect as the balance sheet showed significant reserves and surplus. For M/s Sunny Wisdom Enterprise Inc., the CIT(A) noted that the investment was made through proper foreign remittance channels, supported by RBI documents and the company's substantial operating revenues and shareholders' equity.

4. Justification of the CIT(A)'s Order:

The CIT(A) meticulously analyzed the evidence provided by the assessee and the responses from the investor companies. The CIT(A) concluded that the assessee had discharged its onus under Section 68 by proving the identity, creditworthiness, and genuineness of the transactions. The CIT(A) also noted that the AO failed to provide any contrary evidence or make further inquiries with the concerned authorities, such as the FT & TR or RBI, to discredit the investor companies' claims.

5. Restoration of the Assessing Officer's Order:

The Revenue's plea to set aside the CIT(A)'s order and restore the AO's order was dismissed. The Tribunal upheld the CIT(A)'s findings, emphasizing that the assessee had provided sufficient evidence to substantiate the share application money received. The Tribunal also referred to various judicial precedents, including the Hon'ble Supreme Court's decision in CIT v. Lovely Exports (P) Ltd., highlighting that if the identity and genuineness of the shareholders are established, the amount cannot be treated as undisclosed income under Section 68.

Conclusion:

The Tribunal concluded that the assessee had successfully discharged its burden under Section 68 by providing comprehensive evidence of the identity, creditworthiness, and genuineness of the share application money received from the investor companies. The AO's addition was based on incorrect factual findings and a lack of further investigation. Consequently, the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal.

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