2020 (3) TMI 227 - AT - Income Tax

Unexplained credit u/s 68 - unexplained share capital - HELD THAT - In so far as companies incorporated under Indian Companies Act are concerned, whether private limited or public limited companies, they raise their share capital, through shares though manner of raising share capital in private limited company on one hand and public limited company on other hand, would be different. The share capital and share premium are basically irreversible receipts or credits in the hands of the companies. Share capital is considered to be cost of shares on equivalent amount issued and premium is considered as extra amount charged by the company for issue of that capital. In the case of private limited company, normally shares are subscribed by family members or persons known/close to the promoters. Public limited company, on the other hand, generally raised by public issue inviting general public at large for subscription of these shares. Yet, it is also possible that in the case of public limited company, the share capital is issued in close-circuit. When companies incorporated under the Companies Act raise their capital through shares, various persons would apply for shares and then give share application money. This amount received from such share holder would naturally be credited in the books of accounts of the assessee. Once the alleged share capital is credited to the accounts of the assessee, then role of section 68 would come. PAN details were submitted in order to demonstrate that this assessee is assessable to tax, and it proves its identity. That concern, responded to the notice received u/s 133(6) - AO, thereafter did not conduct any inquiry. We deem it appropriate to mention that investigation wing of the department is able to unearth details of various accommodation entry providers mainly Kolkatta based companies, but the AO nowhere observed that these concerns were ever engaged in providing accommodation entries, and this fact came to notice of the Department through its investigation wing. Thus, if he has any doubt, he should have called for further information from the share applicants. He should have asked the assessee to produce directors of share applicant companies or Shri Anil Kumar who is brother of one of the directors. AO could have issued summons u/s 131. But instead of conducting any inquiry, he just draw certain inference for disbelieving the documents produced by the assessee or received by him in response to his notice under section 133(6) - we are of the view that since the AO failed to conduct inquiry even on the second remand report called for by the ld.CIT(A), his conclusion are without any supporting evidence. In view of the above discussion, we allow this ground of appeal, and delete the impugned addition. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of ?2,29,28,000 under Section 68 of the Income Tax Act as unexplained credit.
2. Disallowance of ?30,887 under Section 14A of the Income Tax Act.

Issue 1: Addition of ?2,29,28,000 under Section 68 of the Income Tax Act as unexplained credit

The assessee filed its return of income declaring total income at NIL. During scrutiny, the AO noticed the assessee received share application money of ?3,87,72,000 and added this amount under Section 68 of the Act, treating it as unexplained credit. The AO required the assessee to submit the identity, capacity, and genuineness of the creditors. Partial information was provided, leading the AO to make the addition based on various judicial precedents.

Upon appeal, the CIT(A) allowed additional evidence and sent it to the AO for verification. The AO provided a remand report, but the CIT(A) found it unsatisfactory and directed further verification. The AO's subsequent remand report confirmed that only ?2,29,28,000 was received during the year, and the rest was an opening balance, leading to the confirmation of the addition to the extent of ?2,29,28,000.

The assessee argued that it provided confirmations, bank statements, and income tax returns of the share applicants, discharging its onus under Section 68. The AO failed to conduct further investigation and only doubted the credit-worthiness based on meager income shown by the share applicants. The Tribunal noted that the AO did not conduct further inquiry despite the assessee providing PAN details and responses to notices under Section 133(6). The Tribunal emphasized that the quantum of income cannot solely determine credit-worthiness. Citing various judicial precedents, the Tribunal concluded that the AO's inference lacked supporting evidence and deleted the addition of ?2,29,28,000.

Issue 2: Disallowance of ?30,887 under Section 14A of the Income Tax Act

The assessee did not press this ground of appeal due to the small amount involved. The disallowance was made on account of administrative expenses for earning tax-free income. The Tribunal dismissed this ground as it was not pressed by the assessee.

Conclusion:

The Tribunal allowed the appeal partly. The addition of ?2,29,28,000 under Section 68 was deleted due to insufficient inquiry and lack of evidence by the AO. The disallowance of ?30,887 under Section 14A was dismissed as the assessee did not press this ground.