2016 (5) TMI 43 - AT - Income Tax

Addition u/s 68 - subscription of share capital received during the year - Revenue contended that assessee had not produced the directors of the company that SEBI had made enquiries in the case of RGTPL HTCPL and YVJL that they were found to be indulged in price rigging - Held that - We find that the assessee had filed copies of income tax returns directors reports confirmations and affidavits of the directors of all the three subscribers. Thus it had discharged the burden of proof cast upon it. However the AO ignored these evidences and did not make any further enquiries. It is surprising that in spite of clear direction of the FAA he chose not to examine the evidences produced by the assessee. The FAA had given a clear finding of fact that there was no evidence of deposit of cash in the bank accounts of the subscriber at the time of issuing cheques to the assessee for allotting shares. The AO has ignored the fact that the net worth of all the three subscribers was approximately 2. 00 crores that the transactions were carried out through banking channels. It is found that the AO did not make any enquiries with the subscribers about the investments made by them. The FAA has mentioned that the incidence of price rigging took place in the month of December of the succeeding year whereas the subscription was made in earlier year. Thus it could not be said that assessee had routed its unaccounted money through the subscribers. In our opinion assessee had discharged its onus in proving the identity of the creditor as well as creditworthiness of the subscribers and genuineness of the transactions. In these circumstances we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity. The AO had not made any enquiries to substantiate his stand. Considering the above we uphold the order of the FAA and decide the effective ground of appeal against the AO.

Summary

Issues:
Challenge to addition of share capital under section 68 of the Income Tax Act.

Analysis:
The assessing officer (AO) added ?55 lakhs under section 68 of the Act, questioning the share capital addition. The AO raised concerns about the financial credentials of three share subscribers, citing a SEBI order regarding market manipulation. Despite the assessee providing details and confirmations, the AO deemed the transactions dubious. The First Appellate Authority (FAA) remanded the issue for further inquiry. The FAA found the AO's assessment lacking, noting the absence of evidence connecting the share capital to the SEBI order. The FAA emphasized the need for the AO to investigate the creditworthiness of the subscribers. Relying on precedents, the FAA ruled in favor of the assessee, highlighting the burden on the AO to substantiate claims.

The Departmental Representative alleged non-cooperation from the assessee, citing SEBI's investigations into the subscribers. The Authorized Representative contended that all necessary details were provided during assessment, and the AO did not question the subscribers' entity. The Tribunal observed that the AO failed to prove the genuineness of the transactions or the creditworthiness of the subscribers. Despite the SEBI order, the Tribunal found that the assessee had fulfilled its burden of proof, presenting relevant documents. The Tribunal criticized the AO for disregarding evidence and not conducting thorough inquiries. Noting the absence of cash deposits and substantial net worth of the subscribers, the Tribunal upheld the FAA's decision, emphasizing the lack of substantiation by the AO.

In conclusion, the Tribunal dismissed the AO's appeal, affirming the FAA's decision. The Tribunal found the assessee had adequately proven the legitimacy of the transactions and the creditworthiness of the subscribers. Criticizing the AO's lack of investigation and failure to consider evidence, the Tribunal upheld the FAA's ruling, emphasizing the burden on the AO to substantiate claims under section 68 of the Act.