2023 (2) TMI 1233 - AT - Income Tax

Unexplained cash credit u/s. 68 - identity and creditworthiness of the shareholders and genuineness of the transactions not proved - Onus to prove - directors failed to appear to the summons issued u/s. 131 - HELD THAT - All the share applicants are (i) income tax assessees, (ii) they are filing their income tax returns, (iii) share application form and allotment letter is available on record, (iv) share application money was made by account payee cheques, (v) details of the bank accounts belonging to share applicants and their bank statements, (vi) in none of the transactions there are any deposit of cash before issuing cheques to the assessee, (vii) all the share applicants are having substantial creditworthiness represented by their capital and reserves. We notice that all the details were very much placed before the Assessing Officer but while framing the assessment, no efforts have been made by the Assessing Officer to examine the correctness of various proof, filed by the assessee by carrying out any investigation. Merely for non-appearance of the directors, AO disregarded all these documents which have been placed before various statutory authorities including Registrar Of Companies, Income Tax Department and Schedule Banks. The assessee by way of filing all these documents necessary to prove identity, creditworthiness and genuineness of the alleged transaction, has discharged the initial burden casted upon it under the provisions of section 68 - Unless and until, the assessing authority finds any lacuna or adversity or defect in the said documents, the burden to prove remains on the Revenue authorities. In the instant case, ld. Assessing Officer failed to discharge the burden and summarily disregarded the documents filed by the assessee by merely referring to some decisions and not going into the facts of the case except referring to the price per share. Since the assessee has sufficiently explained the identity and creditworthiness of the share subscriber companies and the genuineness of the transaction of applying for the equity shares of the assessee company and since nothing contrary to the evidence filed by the assessee has been placed on record by the Revenue, except the reason that the directors failed to appear to the summons issued u/s. 131 of the Act, we find no reason to interfere with the meritorious finding of the Ld. CIT(A). We accordingly dismiss the grounds raised by the revenue in this respect.

Summary

Issues Involved:
1. Addition made under Section 68 of the Income-tax Act, 1961 regarding unexplained cash credit.
2. Identity, creditworthiness, and genuineness of the share subscribing companies.

Detailed Analysis:

1. Addition under Section 68 of the Income-tax Act:
The revenue appealed against the order of the CIT(A) which deleted the addition of Rs. 1,82,50,000/- made by the Assessing Officer (AO) under Section 68 of the Income-tax Act, 1961, treating the share capital and share premium as unexplained cash credit. The AO had doubted the genuineness of the transactions due to partial non-compliance with summons under Section 131 of the Act by the share subscribing companies.

2. Identity, Creditworthiness, and Genuineness of the Share Subscribing Companies:
The assessee had issued 18,250 equity shares at a premium, raising a total of Rs. 1,82,50,000/- from five corporate entities. During the assessment, the AO sought to verify the identity, creditworthiness, and genuineness of these transactions. Notices under Section 133(6) were issued to the share subscribers, which were duly complied with. However, due to partial non-compliance with summons under Section 131, the AO doubted the transactions and made the addition.

Upon appeal, the CIT(A) elaborately examined the details provided by the assessee, including PAN details, IT acknowledgments, audited financials, and bank statements of the share subscribing companies, and concluded that the assessee had adequately established the identity and creditworthiness of the subscribers and the genuineness of the transactions. The CIT(A) noted that the investments were made through proper banking channels, and the AO did not find any defects in the documents provided.

CIT(A)'s Findings:
- The CIT(A) found that all five share subscribers were corporate assessees with substantial net worth, and the investments were supported by their financial statements.
- Each subscriber had complied with the notices under Section 133(6) by providing necessary documents, such as IT acknowledgments, audited financials, and bank statements, which evidenced the transfer of funds through banking channels.
- The CIT(A) emphasized that the identity of the subscribers was established through their regular income tax filings and the genuineness of the transactions was supported by the banking records and financial statements.
- The non-appearance of the directors of the subscriber companies was not considered fatal to the assessee's case, as the primary onus of proving the genuineness of the transactions was duly discharged by the assessee.

Tribunal's Observations:
- The Tribunal noted that the AO did not bring any substantive material to disprove the documentary evidence provided by the assessee.
- The Tribunal referred to various judicial precedents, including the decisions of the Hon'ble Jurisdictional High Court of Calcutta and the Hon'ble Supreme Court, which supported the assessee's contention.
- The Tribunal observed that the AO failed to conduct further investigations or find any defects in the documents submitted by the assessee.
- The Tribunal concluded that the assessee had sufficiently explained the identity, creditworthiness, and genuineness of the share subscribers and that the AO's addition under Section 68 was based on conjectures and surmises.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 1,82,50,000/- under Section 68 of the Income-tax Act, 1961, and dismissed the revenue's appeal. The Tribunal emphasized that the assessee had discharged its primary onus by providing comprehensive documentary evidence, and the AO failed to disprove the material placed before him. The appeal of the revenue was dismissed, and the order was pronounced in the open court on 01st February, 2023.