2019 (3) TMI 379 - AT - Income Tax

Addition u/s 68 - share capital and share premium - allegation that identity and creditworthiness of the investor could not be property verifiable - directors of the share subscribers did not turn up before AO - HELD THAT - Genuineness cannot be disbelieved unless the papers filed before the AO/Ld. CIT(A) or before us is found to be false or fabricated. Coming to the creditworthiness, we note that from the aforesaid figures which emanate from the Balance Sheet placed along with the paper book of each subscriber shown that the share subscribers had enough money to subscribe in the share capital. We note that all of them have filed their income tax acknowledgement which shows that they are income tax assessees and had their PAN also disclosed in that. In 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. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 of the Act. Therefore, we do not want to interfere in the impugned order of Ld. CIT(A) which is confirmed and consequently the appeal of Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition made by AO on share capital and share premium issued by the assessee under Section 68 of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Deletion of Addition Made by AO on Share Capital and Share Premium Issued by the Assessee Under Section 68 of the Income Tax Act:

The Revenue's main grievance was against the action of the CIT(A) in deleting the addition made by the AO on share capital and share premium issued by the assessee under Section 68 of the Act. The AO noted that the assessee company received share capital of ?1,05,40,000/- and a premium of ?10,95,60,000/-, totaling ?12,01,00,000/- during the year under consideration. The AO found that the identity and creditworthiness of the investors could not be properly verified and issued summons under Section 131 to the directors of the assessee company. However, none responded to the summons, and the assessee failed to produce investors/share subscribers before him, leading to the addition of ?12,01,00,000/-.

The CIT(A) deleted the addition, noting that the assessee had filed the return of allotment of shares with the Registrar of Companies and provided details of share subscribers. The share capital was raised in compliance with the Companies Act, 1956, and the share subscribing entities were regular income tax assessees. The share application money was received through account payee cheques, and relevant bank statements were filed. The CIT(A) observed that the AO made the addition with a predetermined mindset and did not conduct any enquiry. The CIT(A) held that the identity, creditworthiness, and genuineness of the transactions were proved by the assessee.

The Tribunal noted that the assessee had filed a detailed paper book containing 299 pages, including bank statements, income tax returns, audited accounts, and other relevant documents. The Tribunal found that the share subscribers were corporate entities, regularly assessed to income tax, and their investments were duly reflected in their audited accounts. The Tribunal observed that the AO did not conduct any enquiry and acted on whims and fancies. The Tribunal held that the burden of proof under Section 68 was duly discharged by the assessee, and the addition made by the AO was not justified.

The Tribunal also referred to various judicial precedents, including the decision of the Hon'ble Supreme Court in CIT vs. Lovely Exports Ltd., where it was held that if the share application money is received by the assessee company from alleged bogus shareholders, the Department is free to reopen their individual assessments. The Tribunal noted that the identity, creditworthiness, and genuineness of the share subscribers were proved beyond doubt, and the AO's action was based on extraneous parameters.

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition of ?12,01,00,000/- made under Section 68 of the Act. The Tribunal concluded that the assessee had discharged its onus to prove the identity, creditworthiness, and genuineness of the share subscribers, and no addition was warranted under Section 68.