2019 (5) TMI 418 - AT - Income Tax

Addition u/s 68 on account of share capital (including share premium raised by the assessee for the relevant assessment year) - proof of the identity, creditworthiness and genuineness of the share applicants - HELD THAT - 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. We are inclined to uphold the claim of the assessee. To sum up section 68 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. 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. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 - We are inclined to delete the addition confirmed by the Ld. CIT(A) and consequently the appeal of Assessee is allowed.

Issues Involved:
1. Addition of ?1.80 crores under Section 68 of the Income Tax Act on account of share capital and premium.
2. Verification of identity, creditworthiness, and genuineness of share subscribers.
3. Failure to produce directors of share subscribing companies.
4. Treatment of high share premium.

Detailed Analysis:

1. Addition of ?1.80 crores under Section 68:
The main grievance of the assessee was the addition of ?1.80 crores made by the AO under Section 68 on account of share capital and premium. The AO had noted that the assessee received ?1.78 crores as premium on shares subscribed by three Private Limited Companies. Despite receiving confirmations from the share subscribers, the AO made the addition due to the failure of the assessee to produce the directors of these companies.

2. Verification of Identity, Creditworthiness, and Genuineness:
The assessee provided extensive documentation to prove the identity, creditworthiness, and genuineness of the share subscribers, including:
- Copy of letter detailing share application money paid.
- Copy of bank account statements.
- Copy of extracts of minutes of meeting of board of directors.
- Copy of letter of allotment of shares.
- Copy of PAN card.
- Copy of ITR for the assessment year 2012-13.
- Copy of audited balance sheet.

The AO acknowledged these documents but still made the addition due to the non-appearance of the directors. The tribunal cited precedents, including CIT vs. Orissa Corporation Pvt. Ltd. and CIT vs. Jamna Dass Gupta, emphasizing that the identity and creditworthiness were established, and the burden shifted to the department to disprove the transaction.

3. Failure to Produce Directors:
The AO's adverse view was based on the failure to produce the directors of the share subscribing companies. The tribunal referenced the Hon'ble Apex Court's ruling in Orissa Corpn. (P) Ltd., stating that the non-appearance of directors does not automatically render the transactions non-genuine if the identity and creditworthiness of the creditors are established.

4. Treatment of High Share Premium:
The tribunal noted that the AO questioned the high premium of ?990 per share. The assessee justified the premium based on the promoter's background and cited the ITAT Mumbai's decision in Gagandeep Infrastructure Pvt. Ltd., which held that the issue of shares at a premium is a commercial decision and not subject to AO's scrutiny. The tribunal also referenced the Hon'ble Bombay High Court's ruling that share premium is a capital receipt and cannot be taxed as income.

Conclusion:
The tribunal concluded that the assessee had discharged its burden of proving the identity, creditworthiness, and genuineness of the share subscribers. The AO's decision to make the addition under Section 68 was not justified, as the assessee provided sufficient evidence, and the AO did not conduct further inquiries to disprove the transaction. The appeal was partly allowed, and the addition of ?1.80 crores was deleted.

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