2018 (11) TMI 596 - AT - Income Tax

Addition u/s 68 - identity and capacity of the share applicant and genuineness of the transaction - Held that - Under the facts and circumstances of the case there is no dispute to the identities of the share applicants who are companies having PAN and regularly filing their returns of income. All the notices issued to the share applicants were duly served upon and complied with. All the share applicants had sufficient funds in the form of capital and reserve and surplus to invest. The transaction have been made through banking channels and duly recorded in the books of account and reflected in the Audited Financial Statements. There is no instance of cash deposit in any account. Even the share applicant companies are regularly assessed to tax and also scrutinised. The case of the assessee is squarely covered by the decision of Jurisdictional High Court at Kolkata in the case of CIT v Data Ware Pvt Ltd. (2011 (9) TMI 175 - CALCUTTA HIGH COURT) Considering the facts and circumstances of the case the appellant have proved the identity and capacity of the share applicant and genuineness of the transaction. In view of above addition to be deleted - decided in favour of assessee

Summary

Issues Involved:
1. Validity of addition under Section 68 of the Income Tax Act.
2. Compliance with summons issued under Section 131 of the Income Tax Act.
3. Proof of identity, creditworthiness, and genuineness of the share applicants.

Detailed Analysis:

1. Validity of Addition under Section 68 of the Income Tax Act:
The primary issue in this case was whether the addition made by the Assessing Officer (AO) under Section 68 of the Income Tax Act was valid. The AO had added the entire share capital received by the assessee on the grounds that the directors of the share applicant companies did not appear before him. The assessee provided comprehensive documentation, including annual reports, audited accounts, PAN cards, income tax returns, and confirmation certificates from the share applicant companies. The Learned Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, citing that the assessee had sufficiently established the identity, creditworthiness, and genuineness of the share applicants. The Tribunal upheld this decision, emphasizing that the AO failed to bring any contrary evidence on record.

2. Compliance with Summons Issued under Section 131 of the Income Tax Act:
The AO issued summons under Section 131 to the directors of the share applicant companies and the assessee company. The summons were issued late, and the directors did not appear. However, the CIT(A) noted that the share applicants had complied with notices issued under Section 133(6) by providing all necessary documentation. The Tribunal agreed with the CIT(A), stating that non-appearance in response to summons does not automatically invalidate the transactions if other compliance and documentation are in order. The Tribunal referenced several case laws, including the Supreme Court's decision in Orissa Corporation Ltd. and the Bombay High Court's decision in Orchid Industries (P) Ltd., which support the view that non-appearance alone cannot justify an addition under Section 68.

3. Proof of Identity, Creditworthiness, and Genuineness of the Share Applicants:
The assessee provided detailed information about each share applicant company, demonstrating their substantial turnover, paid-up capital, and compliance with tax regulations. The CIT(A) and the Tribunal found that the assessee had successfully discharged its onus to prove the identity, creditworthiness, and genuineness of the share applicants. The Tribunal noted that the share applicants were not "paper companies" but had significant business activities and financial strength. The Tribunal also referenced its own decisions in similar cases, reinforcing that the identity and genuineness of the share applicants were adequately established.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO under Section 68, concluding that the assessee had sufficiently proven the identity, creditworthiness, and genuineness of the share applicants. The Tribunal dismissed the revenue's appeal, emphasizing that non-appearance in response to summons does not invalidate the transactions if other compliance requirements are met. The Tribunal's decision was consistent with established legal precedents, including those set by the Supreme Court and various High Courts.