2019 (5) TMI 419 - AT - Income Tax

Addition u/s 68 - Share premium collected by the assessee - HELD THAT - On perusal of the chart given for fund position of each share applicant it reveals that the net owned funds of each share applicant were several times more than the investment made in equity of the assessee. It is evident that each share applicant had substantial resources of their own compared with the total investible funds available with each share applicants and that investment made in the equity shares and the assessee company was not significant. We note that the AO did not point out any defect or infirmity in the documents placed on record by the assessee as well as the share subscribers. Thus the creditworthiness of the aforesaid share subscribers cannot be disputed. Assessee had produced the aforesaid documents to explain the nature and source of the share capital along with share premium of the six corporate shareholders. AO had accepted the share capital subscribed by these six corporate entities. However, without pointing out any defects has whimsically without giving any reason by a cryptic order has added the entire share premium which was also given by the very same six corporate entities u/s 68 of the Act. AR brought to our notice that the similar additions were made by the Assessing Officer in five cases wherein the AO accepted the share capital but added the share premium which action of the AO was not upheld by the Tribunal. As decided in APEAK INFOTECH, YOGESH INFOTECH, AMPLY INFOTECH, WESTLINE TRADING COMPANY, JASPER COMMERCE, INEX INFOTECH 2017 (9) TMI 1590 - BOMBAY HIGH COURT the amendment to section 68 of the Act by the addition of proviso thereto took place with effect from April 1, 2013. Therefore, it is not applicable for the subject assessment year 2012- 13. So for as the pre-amended section 68 of the Act is concerned, the same cannot be invoked in this case, as evidence was led by the respondents- assessees before the Assessing Officer with regard to identity, capacity of the investor as well as the genuineness of the investment. Therefore, admittedly, the Assessing Officer did not invoke section 68 of the Act to bring the share premium to tax. - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of Share Premium Added as Unexplained Cash Credit under Section 68 of the Income Tax Act.

Detailed Analysis:

1. Deletion of Share Premium Added as Unexplained Cash Credit under Section 68 of the Income Tax Act:

The primary issue in this appeal is the deletion of the share premium collected by the assessee, which was added by the Assessing Officer (AO) as unexplained cash credit under Section 68 of the Income Tax Act. The AO noted that the assessee-company raised share capital of ?25,100 and share premium of ?1,25,24,900 from six corporate entities. While the AO accepted the share capital, he added the share premium as unexplained cash credit. The CIT(A) deleted this addition, prompting the Revenue to appeal.

The Revenue's argument hinged on the inapplicability of the Supreme Court decision in CIT vs. Lovely Exports Ltd. to private limited companies. The Revenue cited various judicial precedents to argue that the burden of proof regarding the identity, creditworthiness, and genuineness of the transaction lies with the assessee. The cases cited include CIT vs. Mithan International, CIT vs. Rajamandir Estates Pvt. Ltd., and CIT vs. Korlay Trading Co. Ltd., among others. These cases emphasize that mere submission of documents such as PAN and income tax returns is insufficient without proving the creditworthiness and genuineness of the transactions.

The Tribunal noted that the assessee had provided comprehensive documentation, including income tax returns, bank statements, financial statements, and confirmations from the share subscribers. The share subscribers were assessed to tax, and payments were made through banking channels, establishing the genuineness of the transactions. The AO did not find any defects in these documents. The Tribunal also noted that the AO accepted the share capital but arbitrarily added the share premium without providing any reasons.

The Tribunal referred to several cases where similar additions were not upheld, including ITO vs. Trend Infra Developers Pvt. Ltd., where the Tribunal deleted the addition of share premium after accepting the share capital. The Tribunal also cited the Bombay High Court decision in Pr. CIT vs. Apeak Infotech, which held that share premium cannot be added under Section 68 for the assessment year 2012-13, as the proviso to Section 68 was introduced only from AY 2013-14.

The Tribunal concluded that the assessee had discharged its burden of proving the identity, creditworthiness, and genuineness of the share subscribers. The AO's action of adding the share premium without pointing out any defects was arbitrary. The Tribunal upheld the CIT(A)'s decision to delete the addition and dismissed the Revenue's appeal.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the share premium added as unexplained cash credit under Section 68, emphasizing the assessee's compliance in proving the identity, creditworthiness, and genuineness of the share subscribers. The appeal of the Revenue was dismissed.