2018 (9) TMI 1753 - AT - Income Tax

Unexplained cash credit u/s 68 - explanation of source of the capital contribution, identity of the creditor and also credit worthiness - Held that - The assessee had received the share application money, complied with the requirements of the AO in the assessment proceedings and allotted the shares to the respective shareholders. The assessee also furnished the confirmation letters containing the details of land holdings. All the share applicants are agriculturists having no taxable income, therefore, there is no case for submission of PAN details, and hence we hold that the assessee has explained the source of the capital contribution, established the identity of the creditor and also credit worthiness, hence there is no case for making addition u/s 68 in the hands of the company. As rightly argued by the Ld.AR, the share capital required to be made addition in the hands o fthe assessee company by virtue of proviso introduced in Finance Act, 2012 to section 68 from 2013-14 onwards, but not prior to the amendment. If the revenue is of the opinion that the share application money received by the company is bogus, the revenue is free to take appropriate action in the hands of the shareholders. But having explained the source and established the identity, the revenue is not permitted to make addition in the hands of the company. - Decided in favour of assessee

Summary

Issues:
1. Addition of share application money under section 68 of the Income Tax Act, 1961.
2. Admission of additional evidence and compliance with Rule 46A of Income Tax Rules.

Issue 1: Addition of Share Application Money under Section 68:
The case involved an appeal filed by the revenue against the Commissioner of Income Tax(Appeals) order related to the addition made under section 68 of the Income Tax Act, 1961 concerning share application money. The Assessing Officer found discrepancies in the details provided by the assessee regarding the share application money received. The AO concluded that the assessee failed to establish the identity, genuineness of the transaction, and creditworthiness of the share applicants, leading to the addition of the share application money as unexplained cash credit. However, the CIT(A) deleted the addition, citing the decision of the Honorable Supreme Court in a similar case. The department appealed to the Tribunal, arguing that the AO rightly made the addition due to incomplete information provided by the assessee. The Tribunal held that the assessee had discharged its burden by providing necessary documents and details. It was observed that all share applicants had substantial land holdings to justify their investment, and the revenue failed to prove the share capital was bogus. The Tribunal upheld the CIT(A)'s decision, stating that the revenue could take action against individual shareholders if necessary.

Issue 2: Admission of Additional Evidence and Compliance with Rule 46A:
One of the grounds of appeal was related to the admission of additional evidence and compliance with Rule 46A of the Income Tax Rules. The Tribunal dismissed this ground as infructuous since no additional evidence was furnished by the assessee before the CIT(A). The issue did not impact the final decision regarding the addition of share application money under section 68.

In conclusion, the Tribunal upheld the CIT(A)'s decision to delete the addition of share application money in the hands of the company under section 68 of the Income Tax Act, 1961. The Tribunal emphasized that the assessee had fulfilled its obligations by providing necessary documentation and that the revenue failed to demonstrate the share capital was bogus. The judgment highlighted the importance of establishing the identity and creditworthiness of shareholders and clarified that the revenue could pursue action against individual shareholders if deemed necessary.