2019 (10) TMI 1197 - AT - Income Tax

Addition u/s. 68 - unexplained share capital/share premium as the assessee has failed to prove the identity, creditworthiness and genuineness of the transaction - main plank on which the AO made the addition was because the directors of the share subscribers did not turn up before him - HELD THAT - Share subscribing companies are duly assessed to income tax. The Ld AR had placed on record the copies of the assessment orders framed in the cases of several of the share subscribing companies, as noted above. It therefore cannot be disputed that the share subscribing companies are not in existence. From the assessment orders, it is noted that the share subscribing companies are duly assessed to income tax and their income tax particulars together with the copies of respective income tax returns with their balance sheets are already on record. CIT(A) had categorically stated that the scrutiny assessments were framed on the share subscribing companies for the Asst Year 2012-13 which shows their existence is genuine and transactions carried out by them were the subject matter of examination by the income tax department in scrutiny proceedings. This fact has not been controverted by the Revenue before us. We may gainfully refer to the judgment in the case of Pr. CIT Vs Paradise Inland Shipping (P) Ltd 2017 (11) TMI 1554 - BOMBAY HIGH COURT wherein deleted similar addition on similar set of facts made on account of unexplained cash credits and the SLP filed by the Revenue against the judgment has been dismissed by the Hon ble Supreme Court. 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. 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. PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO's record. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified - no addition was warranted u/s 68 - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act on account of unexplained share capital/share premium.

Detailed Analysis:

Addition under Section 68 of the Income Tax Act:
The primary issue in this case revolves around the addition of ?2,97,75,000 under Section 68 of the Income Tax Act, made by the Assessing Officer (AO) due to the assessee's failure to prove the identity, creditworthiness, and genuineness of the transactions related to share capital/share premium.

Facts:
- The assessee company filed its return for AY 2012-13, declaring total income at Rs. Nil.
- During scrutiny, the AO noticed that the assessee raised fresh share capital and premium totaling ?2,97,75,000 by issuing 11,91,000 shares at a face value of ?10 each with a premium of ?15 per share.
- Summons under Section 131 were issued to the Director of the assessee and the directors of subscriber companies, but there was no appearance.
- The AO concluded that the assessee failed to prove the identity, creditworthiness, and genuineness of the transactions, leading to the addition under Section 68.

CIT(A) and ITAT Proceedings:
- The CIT(A) upheld the AO's addition.
- The ITAT examined whether the assessee discharged its onus to prove the identity, creditworthiness, and genuineness of the share capital and premium received.

Assessee's Arguments and Evidence:
- The assessee provided details of the share allotments, including board resolutions, ROC filings, and lists of allottees.
- The share capital and premium were received from four entities: Startrade Vyapaar Ltd, Kamayani Commotrade Pvt. Ltd, Baba Basuki Distributors Pvt. Ltd, and Regard Fin-Cap Pvt. Ltd.
- The assessee submitted various documents to prove the identity and creditworthiness of these entities, such as ITR acknowledgments, annual accounts, bank statements, and details of the source of funds.

Tribunal's Findings:
1. Identity and Creditworthiness:
- The assessee provided sufficient evidence, including PAN details, ROC filings, and financial statements, to establish the identity and creditworthiness of the share applicants.
- The share applicants were found to have substantial own funds and were engaged in legitimate business activities.

2. Genuineness of Transactions:
- The transactions were conducted through regular banking channels, and the source of funds was adequately explained.
- The Tribunal noted that the AO did not pursue further inquiries with the AO of the share applicants, which could have provided additional verification.

3. Legal Precedents:
- The Tribunal relied on several judicial precedents, including the Supreme Court's decision in CIT vs. Lovely Exports Pvt. Ltd., which held that if the share application money is received from genuine shareholders, the Department should proceed to assess the shareholders rather than adding the amount to the assessee's income.
- Other relevant judgments cited include CIT vs. Gagandeep Infrastructure and CIT vs. Kamdhenu Steel & Alloys Ltd., which supported the assessee's position.

4. Deletion of Addition:
- The Tribunal deleted the addition of ?31,75,000 as it pertained to the previous assessment year.
- For the remaining ?2,66,00,000 received during the current year, the Tribunal found that the assessee had satisfactorily proved the identity, creditworthiness, and genuineness of the share subscribers.
- Consequently, the Tribunal deleted the entire addition of ?2,97,75,000 made by the AO.

Conclusion:
The Tribunal concluded that the assessee had discharged its onus under Section 68 by providing adequate evidence to prove the identity, creditworthiness, and genuineness of the share capital and premium received. The addition made by the AO was thus deleted, and the appeal of the assessee was allowed.