2019 (2) TMI 991 - AT - Income Tax

Addition u/s. 68 - unexplained credits in the form of share capital/share premium during the year - assessee had discharged the onus of proving the identity and creditworthiness of the share subscribers and the genuineness of the subscription - Held that - Assessee-company received share application money with huge share premium from corporate entities, merely because said amount was received through banking channel, AO was not justified in accepting said transactions as genuine without making proper enquiries and, therefore, impugned revisional order passed by Commissioner setting aside assessment was to be upheld. Regarding the investment made by Hi-Fi Infotech, AR has contented that it is a group company having three companies as share holders, namely Geemad Promoters Pvt. Ltd., Hightech Valuation Consultant and M/s. Wizard Developers Pvt. Ltd. and the fund received as share capital from these three companies by Hi Fi Infotech was invested into assessee company. The investment made in M/s. Hi-Fi Infotech has been accepted by the Assessing Officer of that company and therefore, there is no valid reason to doubt the investment made by M/s. Hi-Fi Infotech into the assessee company. Assessee has produced copy of order passed u/s. 143(3) in the case of this investor company, which was also stated to have been submitted before the AO. In presence of these facts, once the investment in the said company stands accepted by the Revenue authorities, it is not justified to doubt the investment made by the same company into the assessee company on the basis of suspicion and presumption of bogus share capital. The contentions of the assessee could not be controverted on behalf of the Revenue. We, therefore, are of the opinion, that the CIT(A) has rightly deleted the addition made u/s. 68 with respect to this company. - Decided against revenue

Summary

Issues Involved:
1. Deletion of addition made under Section 68 of the I.T. Act on account of unexplained credits in the form of share capital/share premium.
2. Discharge of onus by the assessee in proving the identity, creditworthiness of the share subscribers, and the genuineness of the subscription.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68:

The Revenue appealed against the order of the CIT(A), which deleted the addition of ?1,30,00,000 made by the Assessing Officer (AO) under Section 68 of the I.T. Act. The AO had added this amount as bogus share capital, comprising ?1,00,00,000 from 10 unrelated entities and ?30,00,000 from a group company, Hi-Fi Infotech Pvt. Ltd. The AO's reasons for treating the share capital as bogus included non-compliance or non-service of notices under Section 133(6), non-existence of subscriber companies at the given address, non-production of directors, absence of profit-making apparatus, low income of investor companies, rotation of money in bank accounts, and no justification for high premium charged.

The CIT(A) deleted the addition after considering the submissions and documentary evidence provided by the assessee, which included share application forms, confirmed statements of accounts, ITRs, bank statements, certificates of incorporation, balance sheets, and share certificates. The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to point out defects in these documents or conduct any inquiry to verify their authenticity. The Tribunal emphasized that mere suspicion without inquiry or cogent material cannot justify an addition under Section 68.

2. Discharge of Onus by the Assessee:

The Tribunal found that the assessee had discharged its onus by providing detailed explanations and documentary evidence regarding the nature and source of the credits. The AO's dissatisfaction was based on suspicion rather than concrete evidence. The Tribunal referred to several case laws, including the Gujarat High Court's decision in PCIT vs. D&H Enterprises, which held that the AO could not reject the genuineness of transactions merely because summons were not served or complied with.

The Tribunal noted that the assessee had provided all relevant details, including PAN numbers, confirmations, bank statements, balance sheets, and profit and loss accounts of the share applicants. The AO did not undertake any investigation to verify these documents. The Tribunal also observed that the share applicants were companies registered under the Companies Act, filing their returns with the IT Department and ROC, and the investments were made through account payee cheques.

The Tribunal dismissed the AO's objections regarding the non-existence of investor companies, low income of investor companies, and non-production of directors. It held that the AO had ample powers to enforce the appearance of the creditors and that the assessee could not compel the directors to appear. The Tribunal also distinguished the case laws relied upon by the Revenue, noting that they were based on different facts and circumstances.

Conclusion:

The Tribunal upheld the CIT(A)'s order, deleting the addition made under Section 68, and dismissed the Revenue's appeal. The Tribunal concluded that the assessee had satisfactorily discharged its onus, and the AO's dissatisfaction was based on mere suspicion without proper inquiry or evidence. The Tribunal emphasized that the identity, creditworthiness, and genuineness of the share subscribers were established through documentary evidence, and the AO failed to bring any cogent material to justify the addition.