2018 (9) TMI 414 - AT - Income Tax

Addition made towards share capital u/s 68 - treating the entire share capital and share premium as bogus - the common director of 5 share subscribing companies was not produced for examination - Held that - Section 68 provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its income of the previous year in which the same was received. In the facts of the present case, both the nature & source of the share capital received with premium were fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed before the AO. All the three conditions as required u/s. 68 i.e. the identity, creditworthiness and genuineness of the transaction were placed before the AO and the onus shifted to the ld AO to disprove the materials placed before him. Without doing so, the addition made by the ld AO is based on conjectures and surmises cannot be justified - no addition was warranted under Section 68 - Decided in favour of assessee Disallowance u/s 14A - Held that - We hold that the provisions of section 14A of the Act could be applied only when there is a claim of exempt income by the assessee. Hence we find no infirmity in the order of the ld CITA in this regard. Accordingly, the Ground No. 2 raised by the revenue is dismissed.

Issues Involved:
1. Deletion of addition towards share capital under Section 68 of the Income Tax Act, 1961.
2. Deletion of disallowance under Section 14A of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Deletion of Addition Towards Share Capital under Section 68:

The primary issue was whether the Commissioner of Income Tax (Appeals) [CITA] was justified in deleting the addition of ?1,80,00,000 made towards share capital under Section 68 of the Income Tax Act. The assessee company had raised share capital during the financial year 2011-12 by issuing shares at a premium to seven subscriber companies. The Assessing Officer (AO) treated the entire share capital and share premium as bogus, adding it as unexplained cash credit under Section 68, due to the non-production of a common director of the subscriber companies.

The CITA deleted the addition, noting that the assessee had provided all requisite details, including income tax returns, certificates of incorporation, audited financial statements, bank balances, share allotment letters, and bank account copies of the shareholders. Six out of seven shareholders responded to the notices under Section 133(6) and confirmed the transactions.

The Tribunal upheld the CITA's decision, emphasizing that the assessee had discharged its onus by proving the identity, genuineness, and creditworthiness of the share applicants. The Tribunal referenced several judicial precedents, including the Supreme Court’s decision in Orissa Corporation P Ltd and the Gujarat High Court’s decision in DCIT vs Rohini Builders, which held that the burden shifts to the Department once the assessee furnishes the necessary details. The Tribunal also noted that the AO did not make further inquiries or issue summons to the directors of the share applicant companies, which was required for a proper assessment.

The Tribunal concluded that the AO's adverse inference was unwarranted and the addition was based on suspicion rather than concrete evidence. The Tribunal also referenced the principle that the AO of the assessee cannot question the creditworthiness of the share applicants beyond the details provided by the assessee. The Tribunal cited multiple cases, including decisions from the Calcutta High Court, which supported the assessee’s position that the initial burden of proof was sufficiently discharged.

2. Deletion of Disallowance under Section 14A:

The second issue was whether the CITA was justified in deleting the disallowance of ?1,31,956 under Section 14A of the Income Tax Act. The AO had invoked Rule 8D(2) to make the disallowance despite the assessee not claiming any exempt income.

The Tribunal upheld the CITA's decision, referencing the Madras High Court’s ruling in CIT vs Chettinad Logistics P Ltd, which held that Section 14A provisions could not be applied in the absence of exempt income. The Tribunal also noted that the Supreme Court dismissed the Special Leave Petition (SLP) against this ruling, reinforcing the principle that Section 14A applies only when there is a claim of exempt income.

Conclusion:

The Tribunal dismissed the Revenue’s appeal, confirming the CITA's deletion of the addition towards share capital under Section 68 and the disallowance under Section 14A. The Tribunal emphasized the importance of proper inquiry and evidence in assessments and upheld the principle that the burden of proof shifts to the Department once the assessee provides adequate details.

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