2020 (11) TMI 447 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - addition towards share application and share premium received - AO came to a conclusion that assessee has no explanation to offer and presumed that these 13 investors are not willing to be examined in person and for the want of some identity of the shareholders of the assessee can not be ascertained and finally made the addition to the income of the assessee - whether the ingredients under section 68 of the Act namely identity, creditworthiness of the parties/investors and genuineness of the transactions were satisfied or not.? - HELD THAT - The details of the investors have been given hereinabove while narrating the facts of the case. In the present case, the AO in order to verify these investments issued commission to DDIT (Inv.) Wing Kolkata under section 131(1)(d) of the Act besides calling upon the assessee to furnish the evidences and documents proving the investments in share capital by the various investments. The assessee filed before the AO various evidences comprising copies of bank statements of these investors evidencing the payments through banking channel, confirmations from the investors, copies of ITRs and balance sheets of the investors along with share application forms and share certificates. The DDIT (Inv.) Wing Kolkata also issued notices to these 13 investors and required their presence. - none appeared but they filed their replies furnishing therewith copies of balance sheets, bank statements, share certificates and confirmations. The DDIT(Inv) finally submitted the report to the AO citing all these facts. See ORISSA CORPORATION PVT. LIMITED 1986 (3) TMI 3 - SUPREME COURT and LOVELY EXPORTS (PVT) LTD 2008 (1) TMI 575 - SC ORDER and M/S. AMI INDUSTRIES (INDIA) P. LTD. 2020 (2) TMI 269 - BOMBAY HIGH COURT Once the assessee has filed the necessary evidences to prove identity, creditworthiness and genuineness by proving sources of investments, then the onus on the assessee is fully discharged and it is for the department to prove to the contrary. We have also perused the case laws relied upon by the Ld. D.R. but found that the same are not applicable to the facts of the present case. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition of ?4,83,50,000/- towards share application and share premium received by the assessee.
2. Identity, creditworthiness of investors, and genuineness of the transaction.
3. Validity of the assessment order under section 143(3) of the Income Tax Act.
4. Applicability of various judicial precedents.

Detailed Analysis:

1. Deletion of Addition of ?4,83,50,000/-:
The Revenue contested the CIT(A)’s decision to delete the addition made by the Assessing Officer (AO) concerning the share application and share premium received by the assessee. The AO had added ?4,83,50,000/- to the income of the assessee as unexplained cash credit under section 68, citing the failure to prove the identity, creditworthiness of investors, and genuineness of the transaction.

2. Identity, Creditworthiness of Investors, and Genuineness of the Transaction:
The assessee provided comprehensive documentation to the AO, including:
- Details of the source of income of the investor companies.
- Confirmations of transactions from the investors.
- Balance sheets, MOA, IT returns, and bank statements of the investors.
- Share allotment forms, proofs of delivery of shares, board resolutions, and share certificates.
Despite these submissions, the AO concluded that the identity of the investors could not be ascertained due to the non-compliance of summons by the investors and their failure to appear in person. The AO relied on the report from DDIT (Inv.) Wing, Kolkata, which stated that several companies did not exist at the given addresses and that the responses from investors were incomplete and in a standard format.

3. Validity of the Assessment Order under Section 143(3):
The CIT(A) observed that the assessee had discharged its primary onus by providing sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions. The CIT(A) relied on various judicial precedents, including:
- CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR 195 (SC), which held that if the share application money is received from alleged bogus shareholders whose names are given to the AO, the Department is free to reopen their individual assessments, but it cannot be regarded as undisclosed income of the assessee company.
- CIT vs. Oasis Hospitalities (P) Ltd. (2011) 333 ITR 119, which stated that the primary onus stands discharged when the assessee company files copies of PAN, ITRs, and bank account statements of the share applicants.
- CIT vs. Pranav Foundation Ltd. (2014) 90 CCH 0021, which reiterated that the share application money cannot be regarded as undisclosed income if the names of the shareholders are given to the AO.

4. Applicability of Various Judicial Precedents:
The CIT(A) distinguished the case from other precedents cited by the AO, such as CIT vs. P Mohan Kala (2007) 161 Taxman 169 and Vijay Talwar vs. CIT 330 ITR1, which dealt with different factual scenarios. The Tribunal upheld the CIT(A)’s decision, emphasizing that the assessee had provided all necessary documents to establish the identity, creditworthiness, and genuineness of the transactions, thus discharging its onus under section 68.

Conclusion:
The Tribunal dismissed the Revenue’s appeal, affirming the CIT(A)’s order to delete the addition of ?4,83,50,000/-. The Tribunal concluded that the assessee had sufficiently proven the identity, creditworthiness, and genuineness of the transactions, and the AO’s addition under section 68 was unwarranted. The Tribunal also addressed procedural delays due to the COVID-19 pandemic, justifying the extended timeline for pronouncing the order.