2023 (2) TMI 1292 - AT - Income Tax

Bogus share capital - unexplained cash credit u/s. 68 - burden to prove - assessee submitted that all the relevant details and evidence to explain the identity, creditworthiness and genuineness of the transactions were placed on record and the assessee had fully discharged its initial burden casted u/s. 68 - HELD THAT - We note that Ld. AO without even going through and discussing the details submitted by the subscriber companies, insisted for personal appearance to prove the identity, creditworthiness of the subscribers and the genuineness of the transactions. Admittedly, it is a fact on record that director representing four share subscriber companies attended before the ld. AO and furnished the required details. To our mind, Ld. AO could have taken an adverse view only if he could point out the discrepancies or insufficiency in the evidence and details furnished in his office and also as to get further investigation was needed by him by way of recording of statement of the directors of the assessee and the subscriber companies. We draw our force from the decision of Paradise Inland Shipping Pvt. Ltd. 2017 (11) TMI 1554 - BOMBAY HIGH COURT wherein it was held that once the assessee has produced documentary evidence to establish the existence of the subscriber companies, the burden would shift on the revenue to establish their case. From the perusal of the paper book and the documents placed therein, it is vivid 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 which were filed in response to notice u/s 133(6), (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) all the share applicants are having substantial creditworthiness represented by their capital and reserves. We find that assessee has discharged its onus to prove the identity and creditworthiness of the share subscribing companies and the genuineness of the transactions towards sum received during the impugned year. Accordingly we set aside the order of the ld. CIT(A) and direct the ld. AO to delete the addition made towards share capital and share premium u/s. 68 - Assessee appeal allowed.

Issues Involved:
1. Addition of share capital as unexplained cash credit under Section 68 of the Income-tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Addition of Share Capital as Unexplained Cash Credit under Section 68 of the Income-tax Act, 1961:

The sole issue in this appeal concerns the addition of Rs. 4,78,50,000/- towards share capital and share premium as unexplained cash credit under Section 68 of the Income-tax Act, 1961. The assessee had issued 48,250 shares at a premium, totaling Rs. 4,78,50,000/-, to six companies. During the assessment proceedings, the Assessing Officer (AO) noted this transaction and called for details and explanations. Notices under Section 133(6) were issued to the six companies, and summons under Section 131 were issued to the directors of the assessee and the allottee companies. However, directors from two companies did not appear in person, leading the AO to conclude that the transaction was not satisfactorily explained, and thus, made the addition under Section 68.

Before the Tribunal, the assessee argued that all relevant details and evidence to prove the identity, creditworthiness, and genuineness of the transactions were provided. The assessee emphasized that the share capital and premium were received through cheques from companies that were income tax assessees. Despite the non-appearance of some directors, the assessee contended that sufficient documentary evidence was submitted, including bank statements and audited financial statements.

The assessee relied on several judicial precedents to support their case. The Tribunal noted that the AO did not find any fault or deficiency in the extensive material provided and had merely based the addition on the non-appearance of directors. The Tribunal referred to various High Court decisions, including CIT v. Dataware Pvt. Ltd., CIT v. Sagun Commercial P. Ltd., and CIT v. Creative World Telefilms P. Ltd., which emphasized that the AO should conduct proper investigations and not merely rely on the non-appearance of directors.

The Tribunal observed that the AO did not point out any discrepancies in the evidence provided and failed to conduct further investigations. The Tribunal cited the decision of the Hon'ble Bombay High Court in PCIT v. Paradise Inland Shipping Pvt. Ltd., which held that once the assessee produces documentary evidence, the burden shifts to the revenue to establish their case. The Tribunal also referred to the Hon'ble Calcutta High Court's decision in Crystal Networks Pvt. Ltd. v. CIT, which stated that the non-appearance of witnesses is not critical if documentary evidence supports the assessee's claims.

The Tribunal concluded that the assessee had discharged its initial burden of proof regarding the identity and creditworthiness of the share subscribers and the genuineness of the transactions. The Tribunal found that the AO had not provided any substantive evidence to justify the addition and had acted on mere assumptions.

The Tribunal also noted that the amendment to Section 68, which requires the explanation of the source of the source for share capital, was effective from 01.04.2013 and was not applicable to the assessment year in question (2012-13). The Tribunal found that the assessee had provided all relevant documents, including bank statements and audited balance sheets of the subscriber companies, to prove the source of the funds.

Based on these findings, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition made towards share capital and share premium under Section 68 of the Act. The appeal of the assessee was allowed.

Conclusion:

The Tribunal allowed the appeal of the assessee, directing the deletion of the addition made towards share capital and share premium under Section 68 of the Income-tax Act, 1961. The Tribunal emphasized that the assessee had provided sufficient documentary evidence to prove the identity, creditworthiness, and genuineness of the transactions, and the AO had failed to conduct proper investigations or point out any discrepancies in the evidence provided.

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