2016 (4) TMI 575 - AT - Income Tax

Addition on account of unexplained share capital, share application money and share premium received - CIT(A) deleted the addition - Held that - According to provision of section 68 it is primary onus of the assessee to prove identity, creditworthiness and genuineness of the transaction. In this case the assessee has submitted extensive details about each of the creditors and despite that addition has been made u/s 68 of the Act. AR has also submitted a chart which also shows that some of the credit entries which are converted into allotment of share capital are credited in the books of account of the assessee in previous year. When the assessee has given the full details stating the name, address, PAN no, details of bank account, Income Tax return, bank statement and confirmation of those parties, we agree with learned Commissioner of Income-tax (Appeals) that addition u/s 68 cannot be made. Further the pattern observed by the AO may be relied upon if there have been a detailed enquiry made by the AO regarding cash deposit by the person and then transfer entries given about the such deposits to the assessee s depositors. No such Inquiries have been done. Therefore in view of the above we confirm the order of learned Commissioner of Income-tax (Appeals) on this ground and in result the appeal of the revenue is dismissed. - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of addition on account of unexplained share capital, share application money, and share premium.
2. Whether the assessee discharged the onus of proving the identity, creditworthiness, and genuineness of the transactions under Section 68 of the IT Act.

Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Share Capital, Share Application Money, and Share Premium:

The revenue appealed against the deletion of an addition of Rs. 66.25 lacs made by the Assessing Officer (AO) on account of unexplained share capital, share application money, and share premium received by the assessee during the year. The AO had made this addition under Section 68 of the IT Act, asserting that the assessee failed to prove the creditworthiness and genuineness of the transactions.

The assessee, a private limited company, had issued share capital of Rs. 15 lacs, share application money of Rs. 1.25 lacs, and fresh share premium of Rs. 50 lacs from 27 contributors. The AO issued notices under Section 133(6) to the bankers of some share applicants and observed a pattern of cash deposits followed by transfer entries, leading to the conclusion that the assessee was channelizing unaccounted money as share application money and share premium.

2. Whether the Assessee Discharged the Onus of Proving the Identity, Creditworthiness, and Genuineness of the Transactions:

The Commissioner of Income-tax (Appeals) deleted the addition, holding that the assessee had discharged its onus by providing extensive details about each creditor, including confirmations, PAN details, bank details, copies of income tax returns, address proofs, affidavits, and bank statements. The CIT(A) emphasized that the AO's misgivings were not substantiated with concrete evidence and that the assessee's documentation was sufficient to prove the genuineness of the transactions.

The Tribunal noted that the AO's six-fold objections included errors in bank details, low income of share applicants, denial of transactions by one applicant, non-service of notices to some applicants, cash deposits in third-party accounts before issuing cheques to the assessee, and failure to produce all share applicants. However, the Tribunal found that these objections did not invalidate the extensive documentation provided by the assessee.

The Tribunal highlighted the following key points from the CIT(A)'s findings:
- The assessee corrected minor errors in bank details voluntarily.
- The income levels of share applicants were not uniformly low, and the AO's generalization was not supported by evidence.
- The denial by one share applicant was based on an incorrect investment figure, and the assessee was not allowed to cross-examine the witness.
- The failure to serve notices or produce all share applicants did not justify adverse inferences, as per established legal precedents.
- The AO did not establish any link between the assessee and the cash deposits in third-party accounts.

The Tribunal also referred to the Supreme Court's decision in CIT v. Lovely Exports (P) Ltd., which held that if share application money is received from alleged bogus shareholders whose names are provided to the AO, the department can reopen their individual assessments but cannot treat it as the assessee's undisclosed income.

In conclusion, the Tribunal upheld the CIT(A)'s order, stating that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions, and the AO's addition under Section 68 was not justified. The revenue's appeal was dismissed.

Order Pronouncement:

The order was pronounced in the open court on 22/02/2016.