2019 (11) TMI 1224 - AT - Income Tax

Addition u/s.68 - non genuine share application money received by the assessee company - HELD THAT - Here the genuineness of the transaction is proven from the fact that M/s. Aviskar Marketing Pvt. Ltd. has subscribed the shares on premium out of loan taken from NBFCs and has given the immediate source; and not only that, it has also given the documents and confirmations from the NBFC companies confirming the loan given to the subscribing company who in turn has subscribed the share of the assessee company. Wthout there any material that any unaccounted money has been routed through various channels, then simply based on presumption and hypothesis deeming fiction cannot be invoked. If the assessee has proved the source as well as the source of the source of the fund then onus shifts upon the AO to carry some prima facie inquiry to rebut the explanation given by the assessee. In absence of any such exercise, addition cannot be sustained simply based on certain hypothesis. Another reasoning given by the AO for rejecting all the evidences was that assessee has not produced the directors. Now when the party subscribing the shares and paying the money has confirmed the transaction and has proved the source from where it has got the funds directly before the AO by giving all the evidences as discussed above, then mere non-appearance will not make the transaction doubtful or colourable. It is only when there are inconsistencies in the explanation and the evidences filed then the Assessing Officer may ask the assessee to produce. One has to see in such cases, firstly, whether primary onus of proving the nature and source of credit has been discharged, that is, identity, creditworthiness and genuineness of the transaction; and secondly, post such onus, Assessing Officer has made any inquiry or has some material to rebut the explanation and the evidences filed by the assessee. If there are any inconsistencies, then AO may ask the assessee to produce the person and if assessee is unable to do so for certain reasons, then AO has the power to issue summons u/s 131 to ensure the presence. Otherwise AO cannot simply doubt the entire the entire credit which is share application money and shares have been allotted. DR are not applicable on the facts of the case as discussed above, as the entire share application money and premium received by the assessee company stands proved by the assessee company and also by the subscribing company, which has even proved the source of money given to the assessee company. Here it is not case of any accommodation entry provider nor there is any report of investigation wing nor has any inquiry been conducted by the AO to allay or rebut the evidences filed by the assessee company or by the subscribing company. Thus, ratio of all these judgments will not apply in the present case. We hold that share application money received by the assessee company from M/s. Aviskar Marketing Pvt. Ltd cannot be held to be non-genuine. Accordingly, the addition made u/s.68 is directed to be deleted. In the result, the appeal of the assessee is allowed.

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) in examining share capital/premium under Section 68 in a limited scrutiny case.
2. Validity of the addition of ?3,18,00,000 under Section 68 for share capital/premium received from Avishkar Marketing Pvt. Ltd.
3. Discharge of onus by the assessee to prove the identity, genuineness, and creditworthiness of the transactions.

Detailed Analysis:

1. Jurisdiction of the AO in Examining Share Capital/Premium under Section 68 in a Limited Scrutiny Case:
The assessee argued that the AO exceeded his jurisdiction by examining the receipt of share capital/premium under Section 68 in a limited scrutiny case, which was initially selected to examine the applicability of Section 56(2)(viib). The AO did not seek mandatory permission from the Principal Commissioner of Income Tax (PCIT) for extending the scope of examination.

The Tribunal held that once the AO has the mandate to examine the large share premium received during the year, he must examine the transaction holistically, including its taxability under different sections such as Section 68. The AO's power to examine the issue encompasses different sections and is not restricted to Section 56(2)(viib). Therefore, the AO did not exceed his jurisdiction.

2. Validity of the Addition of ?3,18,00,000 under Section 68 for Share Capital/Premium Received from Avishkar Marketing Pvt. Ltd.:
The AO noted that Avishkar Marketing Pvt. Ltd. had no revenue from operations and received unsecured loans from various parties, which were then transferred to the assessee towards share capital and share premium. The AO questioned the identity, genuineness, and creditworthiness of these transactions and made an addition of ?3,18,00,000 under Section 68.

The Tribunal observed that the assessee had provided various documents to discharge the onus under Section 68, including confirmation letters, ITRs, audited financial statements, bank statements, and share valuation reports. The Tribunal noted that the source of funds in the hands of Avishkar Marketing Pvt. Ltd. was explained through loans received from Raju Investments Pvt. Ltd., Superb Developers Pvt. Ltd., and Mahesh Wood Products Pvt. Ltd.

The Tribunal found that the AO did not produce any adverse material to disprove the assessee's explanation and evidences. The Tribunal held that the primary onus cast upon the assessee was fully discharged, and the AO's addition under Section 68 was not justified.

3. Discharge of Onus by the Assessee to Prove the Identity, Genuineness, and Creditworthiness of the Transactions:
The assessee provided detailed documents to prove the identity, genuineness, and creditworthiness of Avishkar Marketing Pvt. Ltd. and the source of funds received by it from other companies. The Tribunal noted that the AO did not point out any discrepancies or shortcomings in these documents.

The Tribunal emphasized that the identity of the parties was proved through ROC records, bank accounts, ITRs, and replies under Section 133(6). The genuineness of the transactions was established through confirmation letters, bank statements, and audited balance sheets. The creditworthiness was demonstrated by explaining the source of funds in the hands of Avishkar Marketing Pvt. Ltd. and the source of the source from other companies.

The Tribunal concluded that the assessee had fully discharged the onus, and the AO's addition based on mere presumption and hypothesis was not sustainable.

Conclusion:
The Tribunal held that the share application money received by the assessee from Avishkar Marketing Pvt. Ltd. was genuine and directed the deletion of the addition made under Section 68. The appeal of the assessee was allowed.

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