2018 (11) TMI 1131 - AT - Income Tax

Addition u/s 68 - Addition made towards share premium - non-compliance of the summons u/s 131 - Held that - We find that the assessee in the instant case had duly complied with by furnishing the complete details of share subscribers to prove their identity, genuineness of the transaction and creditworthiness of share subscribers beyond doubt. These are duly supported by the documentary evidences which are enclosed in the paper book. AO had not found any falsity or any adverse inference of the said documents. We find that the Ld. CIT(A) had placed heavy reliance on these documents and had granted relief to the assessee. All the share subscribers are duly assessed to income tax and the transaction with the assessee company are duly routed through banking channels and are duly reflected in their respective audited balance sheets which are also placed on record before us. Once the receipt of share capital has been accepted as genuine within the ken of section 68 of the Act, there is no reason for the ld. AO to doubt the share premium component received from the very same shareholders as bogus - all the three necessary ingredients of section 68 had been duly complied with by the assessee with proper documentary evidences Only grievance of the AO was that the assessee could not produce the directors of the share subscribing companies In our considered opinion, for this reason alone, there cannot be any addition u/s 68 of the Act as held by the Hon ble Supreme Court in the case of CIT vs. Orissa Corporation Pvt. Ltd. 1986 (3) TMI 3 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Justification of the deletion of the addition made towards share premium by the CIT(A).

Issue-wise Detailed Analysis:

1. Justification of the deletion of the addition made towards share premium by the CIT(A):

The primary issue in these appeals is whether the CIT(A) was justified in deleting the addition made towards share premium amounting to ?2,88,92,100/-. The Assessee raised share capital and share premium during the year under appeal, which the AO scrutinized due to the lack of substantial business activity by the Assessee. The AO issued notices under section 133(6) of the Income Tax Act to all shareholders, which were duly replied to. However, the AO noted that the replies were almost identical and suspected connivance between the Assessee and the shareholder companies. Summons under section 131 were issued to the directors of the Assessee company and the shareholder companies, but the Assessee did not fully comply by producing the directors of the shareholder companies. Consequently, the AO concluded that the share premium of ?2,88,92,100/- was unexplained cash credit under section 68 of the Act, though the share capital of ?57,900/- from the same shareholders was accepted as genuine.

The Assessee argued before the CIT(A) that it had provided various documentary evidences substantiating the share capital and share premium, including income tax returns, bank statements, PAN, and addresses of the shareholders. The Assessee also highlighted that the transactions were routed through proper banking channels and that the shareholders were regularly assessed to income tax. The CIT(A) observed that the AO had a predetermined mindset and failed to prove any falsity in the Assessee’s explanations. The CIT(A) noted that the identity, creditworthiness, and genuineness of the transactions were established beyond doubt, and the provisions of section 56(2)(viib) introduced by the Finance Act, 2012, were not applicable for the assessment year under appeal.

Upon appeal, the Tribunal upheld the CIT(A)’s decision, emphasizing that the Assessee had provided comprehensive details to prove the identity, genuineness, and creditworthiness of the shareholders. The Tribunal noted that the AO had not found any adverse inference in the documents submitted by the Assessee. The Tribunal referenced the Hon’ble Supreme Court’s decision in CIT vs. Orissa Corporation Pvt. Ltd. and the Hon’ble Bombay High Court’s decision in Pr. CIT vs. Apeak Infotech, which supported the Assessee’s stance that share premium cannot be taxed under section 68 if identity, creditworthiness, and genuineness are established. The Tribunal concluded that the CIT(A) had rightly granted relief to the Assessee and dismissed the revenue’s appeal.

Conclusion:

The Tribunal affirmed the CIT(A)’s decision to delete the addition towards share premium, as the Assessee had satisfactorily proved the identity, creditworthiness, and genuineness of the transactions. The appeals of the revenue were dismissed.