2019 (1) TMI 528 - AT - Income Tax

Addition u/s 68 - onus on the assessee to prove the genuineness of the investment made by the parties concerned and their creditworthiness - Held that - AO has doubted the transactions primarily by questioning the high share premium. However, to reiterate, the revenue, by questioning the wisdom of the investor, could not make addition in the hands of the assessee as unexplained cash credit u/s 68 unless it was established that the assessee s unaccounted money was routed in the books through the mechanism of fictitious share allotment. Nothing on record establishes this fact. We find that the assessee has demonstrated the same by filing bank statements, Income Tax Returns, financial statements & various other documents as noted by lower authorities and which are not under dispute. So far as the provisions of Section 56(2)(viib) are concerned, we find that the same do not apply to the assessee in view of the fact that these provisions are inserted by Finance Act, 2012 and applicable with effect from 01/04/2013 only. Secondly, these provisions do not apply to the assessee since the assessee is a public listed company. The consideration of the totality of above facts and circumstances lead us to inevitable conclusion that Ld. CIT(A) was justified in providing relief to the assessee in terms of catena of judicial pronouncements as discussed in the impugned order. Finding no infirmity in the same we dismiss the appeal. - Decided against revenue

Issues Involved:
1. Whether the addition made under Section 68 of the Income Tax Act was justified.
2. Whether the assessee discharged the onus of proving the genuineness of the investment, identity, and creditworthiness of the share applicants.
3. Applicability of Section 56(2)(viib) of the Income Tax Act to the assessee.
4. Allegations of price manipulation and fictitious Long Term Capital Gains (LTCG).

Issue-wise Detailed Analysis:

1. Addition under Section 68:
The revenue appealed against the deletion of the addition made under Section 68 by the Ld. Commissioner of Income-Tax (Appeals) [CIT(A)]. The Ld. AO had treated the share capital and premium received by the assessee as unexplained cash credit under Section 68, questioning the high share premium and the financials of the company. The CIT(A) found that the assessee had provided sufficient documentary evidence to prove the identity, genuineness, and creditworthiness of the share applicants, and thus, the addition was not justified.

2. Onus of Proving Genuineness, Identity, and Creditworthiness:
During the assessment proceedings, the assessee provided PAN, address, confirmation letters, share application forms, and other documents to substantiate the transactions. The Ld. AO, despite receiving responses from share applicants and analyzing their bank statements, concluded that the transactions were not genuine due to the lack of regular activity in the bank accounts. However, the CIT(A) noted that the assessee had discharged its primary onus by providing sufficient evidence, including the market price of shares and statutory approvals from SEBI and BSE. The CIT(A) concluded that the assessee was not required to prove the source of the source and deleted the addition.

3. Applicability of Section 56(2)(viib):
The CIT(A) observed that Section 56(2)(viib) was not applicable to the assessee as it was a listed company with substantial public interest. The provision, effective from 01/04/2013, did not apply to the assessment year in question (2011-12). The CIT(A) also noted that the share premium was justified based on the market price of the shares as on 31/03/2011.

4. Allegations of Price Manipulation and Fictitious LTCG:
The Ld. CIT-DR argued that the assessee manipulated share prices to generate fictitious LTCG for investors. However, the tribunal noted that such allegations fall under the purview of SEBI or other regulatory bodies and cannot be the basis for addition under Section 68 unless it is conclusively established that the assessee's unaccounted money was routed through fictitious share allotments. The tribunal found no evidence to support such a claim and upheld the CIT(A)'s decision.

Conclusion:
The tribunal dismissed the revenue's appeal, affirming that the assessee had successfully demonstrated the fulfilment of the primary conditions under Section 68. The tribunal found no infirmity in the CIT(A)'s order and concluded that the addition made by the Ld. AO was not justified. The tribunal also upheld that Section 56(2)(viib) was not applicable to the assessee and that allegations of price manipulation could not be the basis for addition without conclusive evidence. The revenue's appeal was thus dismissed.

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