2016 (7) TMI 197 - AT - Income Tax

Unexplained investment u/s.68 - genuineness of the share capital introduced - Held that - In view of the findings recorded by CIT(A), all share holders are produced with their books & Bank statements, hence covered by Bombay High court in CIT v/s Tania Investment (2009 (3) TMI 473 - BOMBAY HIGH COURT ). All are assessed since last 10 years. Acknowledgements of filling returns filed by share holders with AO under proceedings u/s 131. Majority share holders are assessed u/s 143(3) & before CIT(Appeal) & Tribunal. Six companies are listed in recognised stock exchanges. Copy of share certificate was filed by share holders with AO. under proceedings u/s 131. Net worth of share holders were from 142 lacs to 50 Crores. The share holders are identified Covered by Bombay High Court in CIT v/s Creative World Telefilms Ltd (2009 (10) TMI 587 - Bombay High Court ).Share holders have their bank accounts, S.S.Securities also have bank accounts, other creditors mentioned by AO. who gave funds to S.S.Securities also have bank accounts. No cash was deposited anywhere. Under KYC norms banks are instructed by RBI to collect photo, Address proof, PAN cards Photo ID etc. The A.O. is totally silent on these facts. Share holders filed their balance sheets along with list of investments where investment in assessee company is clearly shown in schedule of investment. In view of the above, we do not find any infirmity in the order of CIT(A) for deleting the addition made on account of share capital. The detailed findings recorded by CIT(A) have not been controverted by department by brining any positive material on record. Accordingly, we do not find any reason to interfere in the finding so recorded by CIT(A) resulting into deletion of addition made on account of share capital. - Decided in favour of assessee

Issues Involved:
1. Deletion of addition made by the AO on account of unexplained investment under Section 68 of the Income Tax Act.
2. Reliance on the decision in the case of Lovely Exports Pvt. Ltd. by CIT(A).
3. AO's investigation and findings regarding the genuineness of the share capital.
4. CIT(A)'s assessment and decision to delete the addition.
5. Consideration of judicial precedents by CIT(A) and ITAT.

Issue-Wise Detailed Analysis:

1. Deletion of Addition Made by AO on Account of Unexplained Investment under Section 68 of the Income Tax Act:
The AO added amounts under Section 68 of the Act, treating the share capital introduced in the assessee's books as unexplained. The AO's investigation revealed that the funds for these investments were routed through multiple accounts, raising doubts about their genuineness. However, the CIT(A) deleted these additions, stating that the assessee had produced the shareholders for examination, who confirmed their investments with supporting documents.

2. Reliance on the Decision in the Case of Lovely Exports Pvt. Ltd. by CIT(A):
The CIT(A) relied on the Supreme Court's decision in Lovely Exports Pvt. Ltd., which 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 reopen their individual assessments, but the amount cannot be regarded as undisclosed income under Section 68 of the assessee company. The AO's argument that this decision was not applicable because it involved a public limited company was rejected by the CIT(A), clarifying that Lovely Exports Pvt. Ltd. was indeed a private limited company.

3. AO's Investigation and Findings Regarding the Genuineness of the Share Capital:
The AO conducted extensive investigations, including field enquiries and examination of bank accounts, which suggested that the flow of money was layered through multiple entities to obscure its origin. The AO concluded that the transactions were not genuine and relied on various judicial precedents to support the addition under Section 68. However, the CIT(A) found that the shareholders had been produced and their identities and investments were confirmed through statements and documents, thus satisfying the requirements for proving the genuineness of the transactions.

4. CIT(A)'s Assessment and Decision to Delete the Addition:
The CIT(A) observed that during the assessment proceedings, the assessee produced the shareholders who confirmed their investments and provided supporting documents like bank statements, balance sheets, and returns of income. The CIT(A) concluded that the assessee had discharged its onus to prove the genuineness of the transactions and that the AO's reliance on earlier investigations was of little consequence once the shareholders were produced and verified. The CIT(A) also distinguished the case from other precedents cited by the AO, stating that there was no evidence of the transactions being mere accommodation entries.

5. Consideration of Judicial Precedents by CIT(A) and ITAT:
The CIT(A) and ITAT referred to various judicial precedents, including those from the Supreme Court and High Courts, which established that if the identity of the shareholders and the genuineness of the transactions are confirmed, the share capital cannot be treated as undisclosed income under Section 68. The ITAT upheld the CIT(A)'s decision, noting that the department had not provided any positive material to counter the findings. The ITAT also highlighted that the AO's approach of enquiring into the source of the source was not justified once the shareholders had been verified and their investments confirmed.

Conclusion:
The ITAT dismissed the revenue's appeals and the assessee's cross-objections, upholding the CIT(A)'s deletion of the additions made under Section 68. The decision was based on the confirmation of the shareholders' identities and investments, supported by relevant documents, and the application of judicial precedents that protect genuine share capital from being treated as undisclosed income.

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