2020 (4) TMI 519 - AT - Income Tax

Addition u/s 68 - premium portion of the share application money received by the Appellant during the year under appea l - Establishment of three ingredients i.e., the identity and creditworthiness of the creditor / investor and genuineness of the transaction - HELD THAT - Assessee has submitted all necessary documents to establish the identity and creditworthiness of the investors and have also explained the genuineness of the transaction by providing explanation for share premium because apart from questioning the receipt of share premium, no question is raised by the revenue about genuineness and hence, the genuineness of this transaction is also established - there is no cash deposit in the bank accounts of the investor companies and therefore, in the absence of any corroborative material, it cannot be said that the money deposited in these bank accounts of these investor companies may be of the assessee company i.e. the investee company. In the present case, out of 19 companies, 18 companies have made available their balance sheet, audit report, director s report and bank statements and for the remaining one company M/s. Matajwala Investments and Infrastructure Pvt. Ltd., it is noted by learned CIT(A) that the directors of the assessee company and that company are common and addition of the same amount was made in the hands of that company on this basis that source of investment could not be explained by that company. Once addition is made in the hands of the investor company for this reason that the source could not be explained by the investor company, it cannot be said that the amount of same investment is belonging to the investee company and addition cannot be made again in the hands of the investee company. We, therefore, delete the entire addition made in the present case. - Decided in favour of assessee.

Issues Involved:
1. Whether the order of the CIT(A) was opposed to law, facts, and circumstances of the case.
2. Whether the assessee was provided sufficient and reasonable opportunity of being heard.
3. Whether the principles of natural justice were violated.
4. Legitimacy of the addition of ?8,64,30,000 under section 68 of the Income Tax Act.
5. Legitimacy of the enhancement of the addition to ?8,99,51,300 under section 68.
6. Whether the assessee discharged its onus under section 68 by providing necessary documents.
7. Whether the CIT(A) correctly held that the assessee failed to furnish credible evidence.
8. Whether the valuation of equity shares at a premium was justified.
9. Whether the CIT(A) erred in stating that bank statements and final accounts of subscribing entities were not available.
10. Whether the CIT(A) erred in stating that the principal officers of subscribing entities were not available.
11. Applicability of the judgment in the case of Lovely Exports.
12. Applicability of the obligation to prove the source of the source under section 68 retrospectively.
13. Applicability of various High Court and Tribunal judgments regarding the amendment to section 68.
14. Interpretation of the amendment to section 68 in light of the principles laid down by the Supreme Court in Vatika Township.
15. Whether the CIT(A) and AO’s order was based on surmise and conjectures.
16. Relevance of the judgment in Pavankumar M Sanghvi vs. ITO.
17. Rejection of the petition for additional evidence under Rule 46A.
18. Non-provision of the investigation report to the assessee.
19. Addition of ?3,82,80,000 regarding investment by M/s Matajwala Investments and Infrastructures Pvt. Ltd.
20. Levy of interest under sections 234B and 234C of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Opposed to Law, Facts, and Circumstances:
The assessee contended that the CIT(A)'s order was contrary to law, facts, and circumstances. The Tribunal found that the CIT(A) and AO did not correctly appreciate the evidence provided by the assessee, leading to an erroneous conclusion.

2. Opportunity of Being Heard:
The assessee argued that the order was passed hastily without sufficient opportunity for a hearing. The Tribunal noted that the assessee had submitted extensive documentation, indicating that there was a reasonable opportunity to present its case.

3. Principles of Natural Justice:
The assessee claimed a violation of natural justice. The Tribunal found that the procedural aspects were not fully adhered to, impacting the fairness of the assessment.

4. Addition of ?8,64,30,000 under Section 68:
The CIT(A) upheld the AO's addition of ?8,64,30,000 as unexplained share premium. The Tribunal observed that the assessee provided substantial evidence, including bank statements, income tax returns, and audited financials, establishing the identity and creditworthiness of the investors.

5. Enhancement to ?8,99,51,300 under Section 68:
The CIT(A) further enhanced the addition. The Tribunal found that the enhancement was unjustified as the assessee had adequately explained the source and nature of the credits.

6. Discharge of Onus under Section 68:
The assessee argued that it had discharged its onus by providing necessary documents. The Tribunal agreed, noting that the assessee submitted comprehensive evidence, including confirmations from investors and bank details.

7. Credible Evidence:
The CIT(A) held that the assessee failed to provide credible evidence. The Tribunal found this conclusion erroneous, as the assessee had furnished substantial documentation supporting the transactions.

8. Valuation of Equity Shares:
The CIT(A) questioned the valuation of shares at a premium. The Tribunal noted that the assessee provided a share valuation report justifying the premium, which was not duly considered by the CIT(A).

9. Availability of Bank Statements and Final Accounts:
The CIT(A) stated that bank statements and final accounts were not available. The Tribunal found this incorrect, as the assessee had submitted these documents, which were verified by the AO.

10. Availability of Principal Officers:
The CIT(A) claimed that the principal officers of subscribing entities were not available. The Tribunal found that these officers were indeed available and had provided statements under oath, which were not properly considered.

11. Lovely Exports Judgment:
The assessee argued that the CIT(A) and AO ignored the judgment in Lovely Exports, which was upheld by the Supreme Court. The Tribunal agreed, noting that the principles laid down in Lovely Exports were applicable to the assessee's case.

12. Retrospective Application of Section 68:
The assessee contended that the obligation to prove the source of the source under section 68 should not be applied retrospectively. The Tribunal concurred, stating that the amendment to section 68 is prospective from A.Y. 2013-14.

13. High Court and Tribunal Judgments:
The assessee cited various judgments supporting the non-retrospective application of the amendment to section 68. The Tribunal found these judgments relevant and applicable to the case.

14. Interpretation of Amendment to Section 68:
The assessee argued that the CIT(A) disregarded the principles laid down by the Supreme Court in Vatika Township. The Tribunal agreed, emphasizing that the amendment should be interpreted prospectively.

15. Surmise and Conjectures:
The assessee claimed that the CIT(A) and AO’s order was based on surmise and conjectures. The Tribunal found merit in this argument, noting the lack of concrete evidence supporting the additions.

16. Pavankumar M Sanghvi Judgment:
The CIT(A) relied on Pavankumar M Sanghvi vs. ITO. The Tribunal found that the facts of that case were distinguishable from the assessee's case, making the reliance misplaced.

17. Additional Evidence under Rule 46A:
The CIT(A) rejected the petition for additional evidence. The Tribunal found that the rejection was unjustified, as the additional evidence was crucial for a fair assessment.

18. Investigation Report:
The assessee argued that it was not provided with the investigation report, violating natural justice. The Tribunal agreed, noting that the non-provision of the report impacted the assessee's ability to defend its case.

19. Addition of ?3,82,80,000:
The AO added ?3,82,80,000 regarding investment by M/s Matajwala Investments and Infrastructures Pvt. Ltd., which was confirmed by the CIT(A). The Tribunal found that this amount was already subjected to tax in the hands of the investing company, making the addition in the assessee's hands unjustified.

20. Interest under Sections 234B and 234C:
The CIT(A) upheld the AO's order levying interest under sections 234B and 234C. The Tribunal found that since the primary additions were deleted, the consequential interest levies were also not sustainable.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the entire addition made by the AO and confirmed by the CIT(A). The Tribunal emphasized the importance of adhering to principles of natural justice and proper evaluation of evidence.

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