2017 (12) TMI 1203 - AT - Income Tax

Addition u/s 68 - genuineness of the transaction - share capital and share premium - identity and creditworthiness of the investors - the genuineness of the transaction - several other Companies having their Registered Offices at the same address - Held that - Evidences and material on record clearly prove identity of the Investors, their creditworthiness and genuineness of the transaction in the matter. We rely upon the decision of the Hon ble Supreme Court in the case of Orissa Corporation Pvt. Ltd. 1986 (3) TMI 3 - SUPREME Cour . Since the assessee produced sufficient evidence before A.O. therefore, initial burden upon assessee to prove identity of the Investors, their creditworthiness and genuineness of the transaction have been discharged. The case set-up by the A.O. against the assessee was that the premises belong to M/s. Bhushan Steel Companies and other companies are having same registered office. This created a suspicion in the mind of the Revenue. The Ld. CIT(A) therefore, rightly noted that there is no Law that more than one Company cannot have its registered Office at one address. The Investor Companies would have changed their address later on. It is also an admitted fact that source of the capital introduced in these companies were established during the respective assessment proceedings, including in the assessee. No evidence was found during the course of search or survey to indicate introduction of unaccounted cash/funds in the form of share capital in these companies. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the reopening of the assessment under section 147 of the Income Tax Act.
2. Validity of the addition of ?9 crores as unexplained share capital/share premium under section 68 of the Income Tax Act.
3. Violation of principles of natural justice by not confronting the assessee with the enquiry report.

Detailed Analysis:

1. Legality of the Reopening of the Assessment:
The case was reopened under section 147 of the Income Tax Act based on the findings from search, seizure, and survey operations under sections 132 and 133A. The assessee was provided with the reasons for reopening, and their objections were decided separately. The reopening was not contested further as the main focus shifted to the merits of the addition.

2. Validity of the Addition of ?9 Crores as Unexplained Share Capital/Share Premium:
The Assessing Officer (AO) made an addition of ?9 crores as unexplained share capital/share premium under section 68 after concluding that the assessee failed to establish the identity and creditworthiness of the investors and the genuineness of the transactions. The AO noted that the investors had meager incomes and did not provide bank statements showing the source of funds for the share application money.

The assessee challenged this addition before the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that they had provided all necessary documents, including bank accounts, confirmations, and income tax returns of the investors, thus discharging their onus under section 68. The CIT(A) agreed with the assessee, noting that the appellant had discharged its primary onus of establishing the identity of the shareholders and the source of the money. The CIT(A) found that the AO's conclusions were based on suspicions rather than concrete evidence and that the process of capital formation in an open economy should not be viewed as representing unaccounted funds.

The CIT(A) relied on several legal precedents, including the decisions of the Delhi High Court in the cases of Commissioner of Income-Tax vs. Steller Investments Limited and Commissioner of Income Tax v Lovely Exports Pvt Ltd, which held that the burden of proving the creditworthiness of the investors lies with the Revenue once the assessee has provided prima facie evidence of the identity and genuineness of the transactions.

3. Violation of Principles of Natural Justice:
The CIT(A) noted that the enquiry reports from Mumbai and Kolkata were not made available to the assessee, thereby violating the principles of natural justice. The assessee was not given an opportunity to rebut the findings of the enquiry, which were used as a basis for the addition. This issue was not separately contested by the Revenue in their appeal, and thus, the findings of the CIT(A) on this matter became final.

Conclusion:
The CIT(A) deleted the addition of ?9 crores, holding that the assessee had adequately discharged its onus under section 68 by providing sufficient evidence of the identity, creditworthiness, and genuineness of the transactions. The findings of the CIT(A) were upheld by the Income Tax Appellate Tribunal (ITAT), which dismissed the Revenue's appeal. The ITAT emphasized that the AO had failed to provide the assessee with an opportunity to rebut the enquiry reports, and no direct evidence was found against the assessee during the survey operations. The ITAT also noted that the issue was covered in favor of the assessee by several judicial precedents, including the decisions in the cases of ACIT vs. NRA Iron and Steel Pvt. Ltd. and others.