2023 (7) TMI 1389 - AT - Income Tax

Addition u/s 68 - Bogus share transactions - assessee has failed to prove identity, creditworthiness and genuineness of the transaction - summons u/s 131 were not complied by the directors of the assessee company - CIT(A) deleted the addition - HELD THAT - Since the alleged sum has been added in the case of Honesty Dealers Pvt. Ltd. and the sum received by it was invested in the form of loans and advances and investments, during the year under consideration some of the funds have been received backed by Honesty Dealers Pvt. Ltd., and has been utilized for investing in the equity share capital of the assessee company. These details have gone uncontroverted at the end of the revenue authorities and it remains an admitted fact that the source of the source stands proved with the details filed before us and, therefore, making an addition again in the hands of the assessee would tantamount to double addition and, therefore, the addition in the year under consideration is not warranted and the CIT(A) has rightly deleted the same. Assessee company is having a huge turnover and for financial year 2012-13, the same is amounting to Rs.145.38 Crores and net profit from continuing operations is Rs.1.45 Crores. In the return of income, total income has been declared at Rs.1.74 Crores. We find that the genuineness of the transactions is proved since the investment which has been made by the alleged share applicants is in a profit making company and, therefore, since the future prospect of investments are good, this decision of the share applicant company to invest in the equity of the assessee company is prudent one and, therefore, the genuineness of the transactions is established. Since the assessee has successfully proved the three necessary ingredients i.e., identity and creditworthiness of the share applicants and genuineness of the transactions as provided u/s 68 are of the view that no interference is called for in the order of the CIT(A) deleting the addition made by the AO u/s 68 of the Act and the same is upheld. Decided against revenue.

Summary

Issues Involved:
1. Justification of deletion of addition under Section 68 of the Income-tax Act, 1961.
2. Creditworthiness and genuineness of share capital receipt.
3. Compliance with judicial precedents and legal provisions.

Summary:

Issue 1: Justification of deletion of addition under Section 68 of the Income-tax Act, 1961:
The revenue challenged the deletion of an addition of Rs. 19,14,50,000/- made under Section 68 of the Income-tax Act, 1961, by the CIT(A). The AO had added the amount, alleging that the assessee company entered into a sham transaction to introduce unaccounted income as share capital. The CIT(A) found that the share applicants, M/s. Honesty Dealers Pvt. Ltd. and M/s. Seaview Agencies Pvt. Ltd., had provided all requisite documents, including bank statements and income tax returns, proving their identity and creditworthiness. The CIT(A) observed that the share capital received was through banking channels and was recorded in their balance sheets, thus establishing the genuineness of the transactions.

Issue 2: Creditworthiness and genuineness of share capital receipt:
The AO questioned the creditworthiness of the share applicants, alleging they had no business activities and received share premiums from other companies. The CIT(A) found that M/s. Honesty Dealers Pvt. Ltd. had raised share capital in FY 2008-09, which was already added to their income in AY 2009-10. Similarly, M/s. Seaview Agencies Pvt. Ltd. had raised share capital in FY 2008-09, and their assessments for subsequent years did not show any adverse comments on the balance sheet entries. Thus, the creditworthiness and genuineness of the transactions were established.

Issue 3: Compliance with judicial precedents and legal provisions:
The Tribunal upheld the CIT(A)'s decision, citing various judicial precedents. It noted that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the share applicants. The Tribunal emphasized that the AO had not provided any adverse material to substantiate the claim of sham transactions. It also referenced several cases where similar additions were deleted due to the assessee's successful discharge of the initial burden of proof.

Conclusion:
The Tribunal dismissed the revenue's appeal, confirming that the CIT(A) correctly deleted the addition under Section 68, as the identity, creditworthiness, and genuineness of the share applicants were satisfactorily proven. The decision aligns with judicial precedents and legal provisions, reinforcing that mere non-appearance of directors does not justify additions without concrete evidence.