2018 (7) TMI 833 - AT - Income Tax

Addition made towards share capital u/s 68 - Addition only on reliance of the revenue from the remand report of the ld AO is the statements recorded from two directors of the assessee company in the course of proceedings of group company i.e. KTPL. - Held that - These statements were subsequently retracted and the same were taken due cognizance by this tribunal while disposing off the appeal in the case of KTPL for Asst Year 2014-15 All the three ingredients of section 68 of the Act were duly satisfied in the instant case. We hold that the authorities below erred in making an addition u/s 68 of the Act towards share capital and share premium in these peculiar facts and circumstances of the case. Since the addition made towards share capital and share premium is directed to be deleted on these peculiar facts, the other legal issues raised by the assessee in its grounds are not required to be adjudicated and we refrain to give our opinion on the same and those issues are left open. Accordingly, the grounds raised by the assessee are allowed.

Issues Involved:
1. Justification of the addition towards share capital under Section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Justification of the addition towards share capital under Section 68 of the Income Tax Act, 1961:

The primary issue in this appeal is whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in upholding the addition of ?1,25,00,000/- towards share capital under Section 68 of the Income Tax Act, 1961. The assessee, a private limited company, received equity share capital with a premium from six shareholders during the assessment year 2012-13. The Assessing Officer (AO) questioned the identity, creditworthiness, and genuineness of these transactions.

Facts and Proceedings:

The assessee provided various documents to the AO, including names and addresses of shareholders, balance sheets, income tax returns, and bank statements. The AO issued summons and notices to the directors and shareholders, but found non-compliance and insufficient details to verify the transactions. Consequently, the AO added the entire amount received as unexplained cash credit under Section 68.

Appeal to CIT(A):

The assessee argued that all requisite details were furnished, and the AO did not specify what premium would be reasonable. The assessee highlighted its book value per share, future business prospects, and the credibility of its management. The CIT(A) called for a remand report from the AO, who reiterated the lack of compliance by some shareholders and mentioned statements from directors admitting to accommodation entries, which were later retracted.

Tribunal's Analysis:

The Tribunal examined the evidence and found that the assessee had provided substantial documentation to support the receipt of share capital and premium. These included bank statements, final accounts, income tax returns, and details of net worth of the shareholders. The Tribunal noted that the AO had not pursued further verification due to time constraints and relied heavily on retracted statements from directors.

Key Findings:

- The Tribunal emphasized that retracted statements must be corroborated by independent evidence to have evidentiary value, citing the Supreme Court's decision in Vinod Solanki vs Union of India.
- The Tribunal also referenced the Supreme Court's ruling in CIT vs Orissa Corporation (P) Ltd, which held that mere rejection of the assessee's explanation does not justify an addition under Section 68.
- The Tribunal found that the AO had accepted similar share capital and premium in the case of the assessee's group company, Krishna Tissues Pvt Ltd (KTPL), for the assessment year 2013-14, while taking a contrary view for the assessment year 2014-15, which was later decided in favor of KTPL by the Tribunal.

Conclusion:

The Tribunal concluded that the assessee had satisfactorily demonstrated the identity, creditworthiness, and genuineness of the share capital and premium received. The reliance on retracted statements without corroborative evidence was deemed inappropriate. Consequently, the addition under Section 68 was deleted, and the appeal was allowed in favor of the assessee.

Order:

The appeal of the assessee was allowed, and the addition towards share capital and share premium was directed to be deleted. The other legal issues raised by the assessee were not adjudicated, as the primary issue was resolved in favor of the assessee.

Order pronounced in the Court on 11.07.2018.

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