2022 (7) TMI 1466 - AT - Income Tax

Addition u/s 68 - unexplained credit - AO disregarded the share premium received on shares - HELD THAT - AO has accepted the paid up share capital amount as genuine and on other hand disregarded the share premium received on shares as it does not satisfy the ingredients of Sec. 68 though the source of transaction is the same person and there is no rationality of bifurcation of the source. We found that the CIT(A) has admitted the additional evidence and also provided an opportunity to the A.O. to make the comments and the assessee has filed the rebuttal/ rejoinder. Even before us, the Ld.DR has nothing specific to say except placing reliance on the stand of the AO. However, once the issuance of share capital is accepted as genuine, it cannot be open to the AO to treat share premium as unexplained credit u/s 68 but the A.O. has done. A composite receipt of share application money cannot be partly explained and partly unexplained u/s 68 - CIT(A) for this reason was justified in deleting the impugned addition u/s 68 - Decided against revenue.

Summary

Issues:
1. Validity of reassessment proceedings
2. Addition of share premium

Validity of reassessment proceedings:
The revenue appealed against the order of the Commissioner of Income Tax (Appeals)-17, Mumbai, challenging the decision that the assessee had discharged its onus despite failing to establish the genuineness and creditworthiness of the transactions. The Assessing Officer (A.O.) had issued a notice under section 148 of the Act based on the issuance of equity shares at a premium, which the revenue contended was not adequately justified by the assessee. The A.O. invoked Best Judgment Assessment under section 144 of the Act, concluding that the share premium was not genuine. The CIT(A) upheld the validity of the reassessment proceedings and dismissed the appeal of the assessee on this ground.

Addition of share premium:
The primary issue revolved around the addition of share premium amounting to Rs. 2.25 crores under section 68 of the Act. The A.O. doubted the genuineness of the transactions, leading to the addition. The CIT(A) admitted additional evidence provided by the assessee, including details of the shareholder, Mr. Anil Balla, which were crucial in determining the legitimacy of the share application money. The CIT(A) analyzed the provisions of Section 68 of the Act, emphasizing the requirements of identity, creditworthiness, and genuineness of the transactions. After thorough examination of facts, law, and judicial decisions, the CIT(A) directed the A.O. to delete the share premium addition, partially allowing the assessee's appeal.

Judgment Analysis:
During the appeal hearing, the revenue argued that the deletion of the share premium addition was unjustified as the genuineness and creditworthiness of the transaction were not adequately established by the assessee. Conversely, the assessee's representative contended that the A.O. had accepted the paid-up share capital but overlooked the share premium without valid reasons. The Tribunal reviewed the submissions and evidence on record, noting that the CIT(A) had considered additional evidence, including vital information supporting the share application money. The Tribunal found that the A.O.'s acceptance of the paid-up share capital while adding the share premium lacked rationality, especially when the source of the transaction was the same. Citing relevant judicial decisions, the Tribunal emphasized that a composite receipt of share application money cannot be partially explained and unexplained under section 68 of the Act. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the share premium addition, dismissing the revenue's appeal.

This detailed analysis of the judgment highlights the key issues of validity of reassessment proceedings and addition of share premium, providing a comprehensive overview of the legal arguments and decisions made by the authorities and the Tribunal.