2020 (12) TMI 1050 - AT - Income Tax

Addition u/s 68 - increase in share capital and share premium - HELD THAT - The nature of receipt towards share capital is seen from the entries passed in the respective balance sheets of the companies as share capital and investments. For proving the identity of share applicants, the assessee furnished the name, address, PAN of share applicants together with the copies of balance sheets and Income Tax Returns. With regard to the creditworthiness of share applicant, as we noted supra, this company is having sufficient fund. These transactions are also duly reflected in the balance sheets of the share applicant, so creditworthiness is proved. Even if there was any doubt if any regarding the creditworthiness of the share applicant was still subsisting, then AO should have made enquiries from the AO of the share subscribers as held in the several judgments cited above, which has not been done, so no adverse view could have been drawn. The third ingredient is genuineness of the transactions, for which we note that the monies have been directly paid to the assessee company by account payee cheques out of sufficient bank balances available in the bank accounts of the share applicant. It will be evident from the paper book that the assessee has even demonstrated the source of money deposited into their bank accounts, which in turn has been used by them to subscribe to the assessee company as share application. As source of source is proved by the assessee in the instant case though the same is not required to be done by the assessee as per law as it stood/ applicable in this assessment year. The share applicant has confirmed the share application as well as the payments made to the assessee company, which are duly corroborated with their respective bank statements and all the payments are by account payee cheques. We note that 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 applicant. The 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. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 - we delete the addition made by the assessing officer - Decided in favour of assessee.

Issues Involved:
1. Addition of ?45,00,000 under section 153A/143(3) of the Income Tax Act, 1961.
2. Additions made based on surmises without incriminating material.
3. Validity of the assessment order under section 153A/143(3) without notice under section 143(2).
4. Addition under section 68 of the Income Tax Act, 1961.
5. Relevance of case laws and judgments referred by the AO.
6. Reliance on enquiry report by DDIT (Inv), Unit 2(2), Kolkata.
7. Lack of show cause notice during assessment proceedings.
8. Opportunity to cross-examine persons whose statements were relied upon.
9. Legality of the assessment order.

Issue-wise Detailed Analysis:

1. Addition of ?45,00,000 under section 153A/143(3) of the Income Tax Act, 1961:
The assessee contended that the addition of ?45,00,000/- was erroneous as the particulars of share capital and share premium were part of regular books and no incriminating material was found during the search. The AO made the addition based on the unusual nature of the share premium and the financial strength of the investor companies. The CIT(A) confirmed the AO's action, stating that the assessee failed to prove the identity, creditworthiness, and genuineness of the share applicants.

2. Additions made based on surmises without incriminating material:
The assessee argued that the additions were made purely on surmises without any incriminating material. The AO relied on the financial analysis of the subscriber companies and concluded that the share application money defied logic. The CIT(A) upheld the AO’s decision, stating that the assessee did not discharge its onus to prove the genuineness of the transactions.

3. Validity of the assessment order under section 153A/143(3) without notice under section 143(2):
The assessee claimed that the assessment order was void-ab-initio as no notice under section 143(2) was issued. The CIT(A) dismissed this contention, stating that the AO was required to pass the assessment order under section 153A, which includes issues from regular books and evidence found during the search.

4. Addition under section 68 of the Income Tax Act, 1961:
The AO added ?45,00,000/- under section 68, concluding that the assessee failed to prove the identity, creditworthiness, and genuineness of the share applicants. The CIT(A) supported this view, highlighting that the subscriber companies were mere paper entities providing accommodation entries. The Tribunal, however, found that the assessee had provided sufficient evidence, including PAN, bank statements, and financial statements of the share applicants, proving the identity, creditworthiness, and genuineness of the transactions.

5. Relevance of case laws and judgments referred by the AO:
The assessee argued that the AO irrelevantly referred to various case laws. The CIT(A) relied on the enquiry report and court decisions to support the addition. The Tribunal noted that the AO should have made further enquiries from the AO of the share subscribers, as per judicial precedents, and found that the assessee had discharged its onus.

6. Reliance on enquiry report by DDIT (Inv), Unit 2(2), Kolkata:
The CIT(A) relied on the enquiry report, which indicated that the subscriber companies were entry providers. The assessee argued that the report had no specific allegations against them. The Tribunal found that the AO did not provide an opportunity to cross-examine the persons whose statements were relied upon, violating the principles of natural justice.

7. Lack of show cause notice during assessment proceedings:
The assessee contended that no show cause notice was issued, indicating the AO’s dissatisfaction with the identity and genuineness of the share application money. The Tribunal observed that the AO did not communicate the replies received from the share applicants to the assessee during the assessment proceedings.

8. Opportunity to cross-examine persons whose statements were relied upon:
The assessee argued that they were not allowed to cross-examine the persons whose statements were relied upon in the enquiry report. The Tribunal noted that this was a violation of the principles of natural justice and affected the validity of the assessment order.

9. Legality of the assessment order:
The assessee claimed that the assessment order was bad in law. The Tribunal, after examining the evidence and judicial precedents, concluded that the assessee had discharged its onus to prove the identity, creditworthiness, and genuineness of the share applicants. The addition of ?45,00,000/- was deleted, and the appeal was allowed.

Conclusion:
The Tribunal allowed the appeal, deleting the addition of ?45,00,000/- under section 68, as the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the share applicants. The Tribunal also noted the violation of principles of natural justice due to the lack of opportunity for cross-examination.

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