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2023 (2) TMI 1207 - AT - Income TaxUnexplained capital introduction u/s. 68 - unexplained credit of share capital premium - non-declaration of dividend - onus to prove - HELD THAT - The provisions of Section 68 fasten the liability on the assessee to provide the identity of the lenders/creditor/investor, establish the genuineness of the transactions and creditworthiness of the lenders/creditor/investor. These liabilities on the assessee were imposed to justify the cash credit entries under Section 68 in the case of CIT Vs. Precision Finance (P) Ltd. 1993 (6) TMI 17 - CALCUTTA HIGH COURT as held it was for the assessee to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. On the facts of this case, the Tribunal did not take into account all these ingredients which had to be satisfied by the assessee. Mere furnishing of the particulars was not enough. As discussed in present case we note assessee company was formed during the year under consideration by taking running business of proprietary concern of promoter Shri Ramgopal Maheshwari. There were 8 parties who have given advance to the impugned proprietary concern which was converted into share capital on formation of assessee company. In case of Shri Ramgopal Maheshwari, the assessment u/s 153A was framed for the A.Y. 2010-11 and 2011-12 where genuineness of loan credit was examined and accepted by the AO. Therefore, in our considered view once the credit of such loan credit in erstwhile proprietary concern was accepted, then the conversion of such loan credit into share capital and premium thereon on subsequent occasion cannot be doubted. Coming the credit of share capital and premium thereon from the remaining parties, we find that during the assessment proceedings details such as name of investor, there address, copy PAN, ITR, share allotment letter etc were furnished. AO issued notices u/s 133(6)/131(1) for verification. AO recorded finding that in the second attempt the investors made reply in response to notices issued to them. Each and every queries raised by the AO were answered/ furnished along with necessary documents. However, the AO without pointing any deficiency in the above primary document held that the assessee failed to explain the genuineness of the credit of share capital for the reason that the physical share certificates were not issued to the investors, charging of premium was not justified satisfactory and there was no dividend issued. The entire thrust of the Revenue for treating share capital shown by the assessee as unexplained cash credit u/s 68 is misplaced. It is for the reason that the fact that the physical share certificate issued to the shareholders were lying with the assessee cannot replace the other documentary evidences, as discussed above, filed by the assessee during the assessment proceedings. It is equally important to note that it was the 1st year of operation of the assessee company and that might be the reason for not declaring the dividend. Moreover, the declaration of the dividend by the company has nothing to do with the share capital received by the assessee - no adverse inference can be drawn against the assessee in the event of non-declaration of dividend in the year under consideration. Decided in favour of assessee. Estimation of income - bogus purchases - rate of profit should be adopted on the URD purchases from the unregistered parties - addition made on purchases form unregistered dealer from @6% - CIT(A) restricted addition to 0.24% - HELD THAT - In the present case, the AO, has estimated the gross profit on such URD purchases at the rate of 6% and if the basis of the AO is considered or presumed to be true then the profit which has already been disclosed by the assessee i.e. 5.76%, the benefit of the same should be allowed. Rate at which purchase from the grey market was shown by the assessee cannot be relied upon as gospel truth in the absence of the facts noticed by the AO which have been elaborately discussed in the preceding paragraph. Thus, it is justifiable to add some margin to the taxable income of the assessee on account of such purchases from the unregistered parties. In the present case, difference between the estimated profit determined by the AO on such URD purchases viz a viz the gross profit declared by the assessee, is liable to be added as income of the assessee in the given facts and circumstances. Hence, we do not find any infirmity in the order of the learned CIT(A). Decided against revenue.
Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act for unexplained capital introduction. 2. Restriction of profit estimated on URD (Unregistered Dealer) purchases. Issue-Wise Detailed Analysis: 1. Deletion of Addition under Section 68 of the Income Tax Act for Unexplained Capital Introduction: The Revenue challenged the deletion of an addition of Rs. 13,41,60,000/- under Section 68 of the Income Tax Act, made on account of unexplained credit of share capital and premium. The assessee, a private limited company, converted a proprietary concern into a company and issued shares at a premium, collecting Rs. 13,41,60,000/-. The AO found discrepancies, such as non-issuance of physical share certificates and lack of dividends, and treated the share capital and premium as unexplained credit under Section 68. The CIT(A) deleted the addition, noting that: - The assessee provided detailed information about the investors, including PAN, ITR, and bank statements. - Notices under Section 133(6) were served and complied with by investors. - Some investors were former creditors of the proprietary concern, whose loans were converted into share capital. - The AO's findings were contradictory and unsupported by material evidence. - The AO did not allow cross-examination of witnesses whose statements were used against the assessee. The Tribunal upheld the CIT(A)'s decision, emphasizing that: - The assessee had discharged its burden of proving the identity, genuineness, and creditworthiness of investors. - The AO's reliance on non-issuance of physical share certificates and lack of dividends was misplaced. - The principles laid down by the Supreme Court in the case of NRA Iron & Steel Pvt. Ltd. were not applicable due to distinguishable facts. - The assessee's compliance with statutory requirements and the absence of any adverse material evidence supported the genuineness of the transactions. 2. Restriction of Profit Estimated on URD Purchases: The AO estimated a profit of 6% on URD purchases, making an addition of Rs. 18,06,014/-. The CIT(A) restricted the addition to 0.24%, noting that: - The assessee had already disclosed a gross profit of 5.76%. - The absence of discrepancies in stock during the search indicated proper records of URD purchases. - The element of profit from URD purchases should be comparatively more profitable but not excessively so. The Tribunal upheld the CIT(A)'s decision, stating that: - The profit already disclosed by the assessee should be considered while determining the undisclosed profit. - The AO's estimation of 6% was excessive and not supported by comparable cases. - The difference between the estimated profit and the disclosed profit (0.24%) was reasonable. Conclusion: The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection for AY 2011-12, and partly allowed the assessee's appeals for AY 2012-13 and 2013-14, while dismissing the appeal for AY 2014-15. The decision emphasized the importance of substantial evidence and reasonableness in estimating profits and assessing unexplained credits under Section 68.
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