2019 (3) TMI 271 - AT - Income Tax

Addition u/s 68 - assessee received share capital and share premium from individuals & corporate entities - creditworthiness of the share subscribers could not be proved - identity, creditworthiness and genuineness of the share applicants - HELD THAT - Section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. Assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee cannot be brushed aside by the AO to draw adverse view cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, we hold that an addition cannot be sustained merely based on inferences drawn by circumstance. In the facts of the present case, both the nature & source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO s record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified - Decided against revenue

Summary

Issues Involved:
1. Deletion of addition made by the AO under Section 68 of the Income Tax Act.
2. Identity, genuineness, and creditworthiness of share subscribers.

Issue-wise Detailed Analysis:

1. Deletion of addition made by the AO under Section 68 of the Income Tax Act:
The main grievance of the Revenue was against the action of the CIT(A) in deleting ?1.20 crores added by the AO under Section 68 of the Income Tax Act as unexplained credit. The AO had added the share application money as unexplained credit because he believed the share subscribers lacked creditworthiness despite receiving confirmations and other documents from them. The CIT(A), however, deleted the addition, and the Tribunal upheld this decision. The Tribunal noted that the AO had not recorded any adverse findings against the identity and genuineness of the share subscribers. The AO's addition was based solely on the perceived lack of creditworthiness, which the Tribunal found unjustified given the evidence provided, including PAN details, IT returns, bank statements, and audited accounts.

2. Identity, genuineness, and creditworthiness of share subscribers:
The Tribunal emphasized that the identity and genuineness of the share subscribers were proven through various documents such as PAN details, IT returns, bank statements, and audited accounts. The AO had acknowledged receiving these documents but doubted the creditworthiness of the share subscribers because some of them could not be traced by the Inspector. The Tribunal disagreed with the AO's conclusion, stating that the Inspector's inability to trace the subscribers could not be the sole ground for doubting their creditworthiness. The Tribunal cited the jurisdictional High Court's decision in Dataware Pvt. Ltd. vs. CIT, which held that the AO should inquire from the AO of the creditor to verify the genuineness of the transaction. The Tribunal found that the AO had not conducted such inquiries and had instead relied on the Inspector's report, which was insufficient to draw adverse inferences.

The Tribunal also noted that the share subscribers had substantial own funds, as evidenced by their financial statements, which indicated their capacity to invest in the assessee company. The Tribunal concluded that the AO's doubts about the creditworthiness of the share subscribers were unfounded and that the CIT(A) had correctly deleted the addition.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO under Section 68 of the Income Tax Act. The Tribunal found that the identity, genuineness, and creditworthiness of the share subscribers were adequately proven through documentary evidence. The AO's reliance on the Inspector's inability to trace the subscribers was insufficient to justify the addition. The Tribunal emphasized the need for the AO to conduct proper inquiries from the AO of the creditors to verify the genuineness of the transactions, as per the jurisdictional High Court's decision in Dataware Pvt. Ltd. vs. CIT.