2019 (1) TMI 267 - AT - Income Tax

Unexplained share capital u/s 68 - CIT-A deleted the addition - Held that - We find no merit in Revenue s instant grievance. It has come on record that the Assessing Officer s remand report filed during the course of lower appellate proceedings had found assessee s impugned share capital / premium against the allotment of its equity shares to be very much legally in order. We have ourselves perused the ITO ward-6(1) Kolkata remand report in question forming part of case file to this effect. We conclude in the peculiar clinching factual backdrop that the Revenue cannot be held to be an aggrieved party once CIT(A) has deleted the impugned addition based on Assessing Officer favourable remand report. As decided in Smt. B. Jayalakshmi vs. ACIT 2018 (8) TMI 208 - MADRAS HIGH COURT holds in identical facts that the Revenue is not entitled to maintain appeal in these facts and circumstances. We therefore decline Revenue s sole substantive grievance. - decided against revenue

Issues Involved:
1. Addition of ?3,17,00,000/- under Section 68 of the Income Tax Act, 1961 on account of share capital raised.
2. Verification of identity, genuineness, and creditworthiness of investor companies.
3. Compliance with judicial precedents and principles laid down by higher courts.

Issue-wise Detailed Analysis:

1. Addition of ?3,17,00,000/- under Section 68 of the Income Tax Act, 1961 on account of share capital raised:
The Revenue's appeal contested the Commissioner of Income Tax (Appeals) [CIT(A)]'s order which reversed the Assessing Officer's (AO) addition of ?3,17,00,000/- as unexplained share capital under Section 68 of the Income Tax Act. The CIT(A) had deleted the addition based on detailed submissions and supporting documents provided by the assessee, including share application forms, bank statements, financial statements, and affidavits from the directors of the investor companies.

2. Verification of identity, genuineness, and creditworthiness of investor companies:
The assessee provided comprehensive documentation to establish the identity, genuineness, and creditworthiness of the investor companies. These documents included:
- Confirmation letters from investors.
- Board resolutions for investment.
- Share application forms and allotment letters.
- Share certificates.
- Bank statements showing transactions.
- Income Tax Returns (ITR) acknowledgements.
- Financial statements of investor companies.
- Certificates of registration from the Reserve Bank of India (RBI) for Non-Banking Financial Companies (NBFCs).
- Affidavits by the directors of the investor companies.

The AO's remand report confirmed that the investor companies were registered NBFCs with significant capital, engaged in revenue-generating activities, and had filed regular ITRs. The transactions were verified through banking channels, and no discrepancies were found.

3. Compliance with judicial precedents and principles laid down by higher courts:
The CIT(A) and the ITAT relied on several judicial precedents to support their decision. Key rulings included:
- CIT vs. Lovely Exports (P) Ltd.: Established that once the identity of investors is proved, the burden shifts to the Revenue to prove that the funds are undisclosed income.
- CIT vs. Dataware Private Limited: Emphasized that the AO must investigate the source of funds from the investors' end and not merely rely on the assessee's inability to prove the source of the source.
- CIT vs. Steller Investments Ltd.: Held that even if the subscribers to the share capital are not genuine, the amount cannot be treated as undisclosed income of the company.
- CIT vs. Anshika Consultants (P) Ltd.: Highlighted that the AO must consider all materials on record and cannot disregard crucial documents that establish the identity and creditworthiness of investors.

The ITAT concluded that the Revenue's appeal lacked merit as the AO's remand report had already verified the transactions and found them legally in order. The CIT(A)'s decision to delete the addition was based on substantial evidence and judicial precedents.

Conclusion:
The ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s order to delete the addition of ?3,17,00,000/- under Section 68 of the Income Tax Act. The ITAT emphasized that the assessee had provided sufficient documentation to establish the identity, genuineness, and creditworthiness of the investor companies, and the AO's remand report supported the legality of the transactions. The decision was consistent with judicial precedents, ensuring that the addition was unwarranted.

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