2016 (4) TMI 213 - AT - Income Tax

Unexplained share capital u/s 68 - increase in share capital - Held that - It is seen that the AO has not verified the details furnished by the assessee and I.T. records of the shareholders/investing companies. The averments of the assessee before the AO were not controverted by the AO. The assessee has discharged its burden of providing basic details which were required for verification to fulfill the conditions as laid down by higher judicial authorities for examining the issue u/s. 68 of the Act It is seen that in the present case, the identities of the share applicants are not in dispute. The Hon ble Supreme Court in case of Divine Leasing & Finance Ltd. (2007 (11) TMI 627 - SUPREME COURT ) has held that if the share application money is received by the assessee company even from the bogus shareholders whose names are given to the AO then the Department is free to proceed to reopen their individual assessments in accordance with law. The addition in regard to the share capital cannot be treated as the undisclosed income of the assessee if the share application money is received by the assessee company from alleged bogus shareholders whose names are given to the AO. Further the Hon ble Supreme Court has categorically held that the Revenue is free to proceed to reopen the individual assessments of such alleged bogus shareholders. In these circumstances, respectfully following the decision of the Hon ble jurisdictional High Court as also Hon ble Supreme Court referred to supra, the addition made by the AO and deleted by the learned CIT (A) represented by the increase in share capital of the assessee cannot be treated as unexplained cash credits in the hands of the assessee. - Decided in favour of assessee

Issues Involved:
1. Addition of ?76,00,000 as unexplained share capital under Section 68 of the Income Tax Act.
2. Genuineness of the transactions and the creditworthiness of the investors.
3. Onus of proof and the role of the Assessing Officer (AO) in verifying the details.

Detailed Analysis:

1. Addition of ?76,00,000 as Unexplained Share Capital under Section 68:
The return of income for the year under consideration was filed declaring income at ?46,968. The AO completed the assessment at an income of ?76,46,970 after adding ?76,00,000 on account of share capital as an unexplained sum under Section 68 of the Act. The Ld. CIT (A), on appeal, deleted this entire addition. The department is in appeal against this deletion.

2. Genuineness of the Transactions and Creditworthiness of the Investors:
The assessee company had shown receipt of share application money/share capital of ?76,00,000 from various companies. The AO observed deposits in the bank accounts of all investors through pay orders before the issuance of cheques in favor of the assessee. The AO noted that no credible evidence regarding the genuineness of the transactions or the creditworthiness of the investors was forthcoming either from the assessee or the investors. Despite filing confirmation and Return of Income of the investors, the AO added back the entire sum received under Section 68 due to the assessee's failure to discharge the onus.

In contrast, the Ld. CIT (A) observed that the assessee had filed necessary documents such as the name and address of the shareholders, Income Tax particulars, share application forms, and confirmation of shareholders regarding the share capital subscribed. The Ld. CIT (A) concluded that the AO could not prove with certainty that the investors were entry providers or that the transactions were bogus. The AO had made no concrete efforts to verify the facts and relied solely on information from the department's information wing. Thus, the Ld. CIT (A) deleted the entire addition.

3. Onus of Proof and the Role of the Assessing Officer (AO):
The Ld. AR argued that the assessee had proved the identity of the investors and the genuineness of the transactions. It was submitted that once the identity of the shareholders is proved, there is no case for addition in the hands of the assessee company. If there was any doubt about the creditworthiness of the shareholders, necessary action should have been taken against the shareholders.

The Tribunal noted that the AO had not verified the details furnished by the assessee nor the I.T. records of the shareholders. The assessee had discharged its burden of providing basic details required for verification under Section 68. The Tribunal referred to the case of CIT vs. Divine Leasing & Finance Ltd., where the Hon’ble Jurisdictional High Court observed that the company must maintain and make available all information contained in the statutory share application documents. The burden of proof can seldom be discharged to the hilt by the assessee; if the AO harbors doubts, he is duty-bound to carry out thorough investigations. However, if the AO fails to unearth any wrong or illegal dealings, he cannot treat the subscribed capital as the undisclosed income of the company.

The Tribunal also referred to the Supreme Court's observation in the case of CIT Vs. Lovely Exports (P) Ltd., where it was held that if the share application money is received from alleged bogus shareholders whose names are given to the AO, the Department is free to proceed to reopen their individual assessments.

In the present case, the identities of the share applicants were not in dispute. The Supreme Court held that the addition regarding the share capital cannot be treated as the undisclosed income of the assessee if the share application money is received from alleged bogus shareholders. The Revenue is free to reopen the individual assessments of such alleged bogus shareholders. The Tribunal concluded that the assessee had provided necessary details and discharged the onus cast on it. The AO had not found any discrepancy in the books of account and bank accounts maintained by the assessee. Thus, the share capital to the extent of ?76,00,000 stands explained.

Conclusion:
The Tribunal upheld the order of the Ld. CIT (A) and dismissed the appeal of the department. The share capital addition of ?76,00,000 was deemed explained, and the grounds of appeal were dismissed. The order was pronounced in the open court on 31/03/2016.

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