2018 (4) TMI 18 - AT - Income Tax

Addition u/s 68 - unexplained credits introduced in the form of share application money and share premium - Held that - Where the same set of existing shareholders invest further sum of money by way of share application and the assessee company issues shares to them, it would not be appropriate for the Revenue to challenge the identity and genuineness of the share transaction which has occurred during the year. When the assessee company has again furnished complete particulars of all these companies in terms of name, address, PAN no., copy of their confirmation, copy of their income tax returns, copy of their balance sheet and bank statements through which the cheque payment has been made. CIT(A) has returned a finding that the balance sheet and bank statement of these companies prove the credit worthiness of making further investment during the year. There is nothing on record which controvert the said findings of the ld CIT(A). We confirm the findings of the ld CIT(A) and set-aside the order of the AO in respect of these 14 companies who are existing shareholders and have made fresh investment during the year. In respect of remaining 6 companies we find that the assessee company has again furnished complete particulars of all these companies in terms of name, address, PAN no., copy of their confirmation, copy of their income tax returns, copy of their balance sheet and bank statements through which the cheque payment has been made. We find that these documents have been submitted before the DDIT, Kolkatta who has not examined these documents and merely forwarded these documents to the AO. Thus in absence of any falsity which have been found in the documents so submitted by the assessee company to prove the identity, creditworthiness and genuineness of the share transaction, these documents cannot be summarily rejected as has been done by the AO in the instant case. - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act on account of unexplained credits introduced in the form of share application money and share premium.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68:

The sole ground of appeal by the Revenue was that the CIT(A) erred in deleting the addition of ?1.70 Crores made under Section 68 for unexplained credits introduced as share application money and share premium. The facts of the case revealed that the assessee received ?1.70 Crores during the assessment year, consisting of ?17 lacs as share application money and ?1.53 Crores as share premium for fresh issue of share capital.

The Assessing Officer (AO) issued a commission under Section 131(1)(d) of the IT Act to the DDIT, Unit-3, Kolkata, to verify the identity, creditworthiness, and genuineness of the transactions. The DDIT reported that the companies did not exist at the given addresses and suggested they were paper companies used for providing accommodation entries. Consequently, the AO added the entire amount as unexplained money under Section 68.

Upon appeal, the CIT(A) set aside the AO's order, noting that the appellant company had furnished confirmations, evidence of addresses, PAN, balance sheets, copies of Income Tax Returns, and bank statements of the shareholder companies. The CIT(A) found no adverse material indicating any falsity in the documents submitted. The CIT(A) also highlighted that the AO had not brought any evidence to disprove the identity, creditworthiness, or genuineness of the transactions. The CIT(A) relied on the principle laid down by the Supreme Court in CIT Vs. Lovely Exports Pvt. Ltd. [2008], which stated that if share application money is received from alleged bogus shareholders, the department is free to proceed against those shareholders, but it cannot be regarded as undisclosed income of the assessee company.

During the tribunal hearing, the assessee's representative argued that 14 out of the 20 companies were existing shareholders whose identities and transactions had been accepted in previous assessments. The assessee had provided all necessary documents to prove the identity, creditworthiness, and genuineness of the transactions. The tribunal noted that the AO's reliance on the DDIT's report was not conclusive, as the AO had not examined the documents submitted by the assessee.

The tribunal upheld the CIT(A)'s findings, emphasizing that the assessee had discharged its onus by providing requisite evidence, and the burden then shifted to the AO to disprove the transactions. The tribunal also referenced various judicial pronouncements, including the jurisdictional High Court's decision in the assessee's own case for the AY 2008-09, which affirmed that the assessee had discharged its onus under Section 68.

The tribunal concluded that the AO had not provided any evidence to contradict the findings of the CIT(A) and that the CIT(A) had rightly deleted the addition of ?1.70 Crores. The tribunal dismissed the Revenue's appeal and affirmed the CIT(A)'s order.

Conclusion:

The tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition of ?1.70 Crores made under Section 68. The tribunal found that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions, and the AO had failed to disprove the same. The decision was based on the principles laid down by the Supreme Court and various High Courts, including the jurisdictional High Court.