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2016 (6) TMI 837 - AT - Income TaxAddition u/s 68 - increase in share capital - Held that - The technical objections raised by the AO regarding the difference in the date of agreements is satisfactorily explained by the Ld. AR. It is worthwhile to note from the assessment record, that one of the shareholder namely M/s Wisdom Publishing Pvt. Ltd has even confirmed the allotment of shares to them directly to AO in SWAP arrangement to the extent of ₹ 2,50,00,000/-. In view of the above, there is no question for making addition of this amount. Thus the Assessee has satisfactorily discharged the onus lying on him by proving the identity of each and every new shareholder. Further, presuming that the assessee is required to prove the other two requirements of section 68, i.e., creditworthiness of the share holders and genuineness of transactions. Assessee has proved beyond any iota of doubt that all the share holders were creditworthy and all the transactions were genuine. It is so evident from the documents filed during the assessment proceedings. To explain the credit entries in the said bank accounts, the bank accounts of the third parties in the chain were also filed by the assessee. Thus the assessee has not only proved the creditworthiness of the said share holders but also proved the source of the source, for which though no onus lie on him. The Assessee has also furnished the copies of agreements in respect of swapping the shares with the other three companies. Swapping of shares is a recognized standard commercial practice and cannot be treated as any tax evasion technique. The technical objections raised by the AO regarding the difference in the date of agreement is satisfactorily explained by the Ld. AR before the Ld. CIT(A). It is pertinent to mention here that the said swapping transactions have been accepted as genuine by the Assessing Officers having jurisdiction over the other companies with whom the shares were swapped. Therefore, having filed above evidences establishing the identity of the shareholders, genuineness of the transactions and capacity of the shareholder, there remains nothing more for the assessee to prove and onus is discharged and thus action of A.O. in treating the entire increase in share capital as undisclosed income of the assessee is unjustified and therefore Ld. CIT(A) has rightly deleted the addition - Decided in favour of assessee
Issues Involved:
1. Deletion of addition of ?27 crores made under Section 68 of the Income Tax Act, 1961 in respect of share capital. Issue-wise Detailed Analysis: 1. Deletion of Addition of ?27 Crores Under Section 68: Background: The assessee, engaged in consultancy services, filed a return declaring a loss of ?6,43,754 and an income of ?1,09,561 under Section 115JB of the Income Tax Act, 1961. The case was selected for scrutiny, and notices under Sections 143(2), 142(2), and 142(1) were issued. The Assessing Officer (AO) observed that the assessee did not produce books of accounts and failed to establish the creditworthiness of shareholders, leading to an addition of ?27 crores as unexplained cash credits under Section 68 of the Act. Breakdown of Addition: - ?2 crores: Allotment of 20 lakh equity shares to promoters against cheques. - ?10 crores: Allotment of one crore equity shares to three companies under a swap arrangement. - ?15 crores: Allotment of 1.5 crore equity shares to eleven parties against outstanding trade credit balances. Appellate Proceedings: The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who deleted the addition. The Revenue then appealed to the Tribunal. Arguments by the Department: The Department argued that the CIT(A) erred in deleting the addition, emphasizing the failure of the assessee to prove the genuineness and creditworthiness of the transactions. Arguments by the Assessee: The assessee contended that all necessary documents were provided, including confirmation letters, bank accounts, and income tax returns of the shareholders. The assessee argued that the identity, genuineness, and creditworthiness of the shareholders were established, and the CIT(A)'s order was well-reasoned. Tribunal's Analysis: The Tribunal noted that the CIT(A) had elaborately discussed the issue, considering the submissions and evidence provided by the assessee. The CIT(A) found that the AO did not ask for confirmations in respect of the ?2 crores and ?10 crores share capital during the assessment proceedings. The additional evidence provided by the assessee was admitted as it was necessary to decide the appeal. Key Findings: - The identity of the shareholders was established, and no addition could be made on account of share capital in the hands of the company once the identity was proven, as per the Full Bench decision of the Delhi High Court in CIT vs. Sophiya Finance Limited. - Section 68 can only be invoked if a "sum" is credited in the account books for which no satisfactory explanation is provided. In this case, ?25 crores out of the ?27 crores was not brought into the account books by way of cash/cheque/draft but through transfer of entries or swap arrangements, which do not fall under the purview of Section 68. - The assessee provided comprehensive evidence, including confirmation letters, bank statements, and PAN details of the shareholders, proving the identity, creditworthiness, and genuineness of the transactions. - The Tribunal found no merit in the AO's adverse observations, as the assessee satisfactorily explained the discrepancies and provided additional evidence where required. Conclusion: The Tribunal upheld the CIT(A)'s order, deleting the addition of ?27 crores. The appeal filed by the Revenue was dismissed, and the order was pronounced in the open court on 15/06/2016.
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