2021 (3) TMI 720 - AT - Income Tax

Addition u/s 68 - unexplained share premium and Share Capital received - low income reported by investors - search proceedings initiated - CIT-A deleted the addition - HELD THAT - A.O. merely doubted the financial capacity of the Investors because they have reported low income in their return of income. This cannot be the sole basis to doubt the explanation of assessee. It may be suspicion of the A.O. only without bringing any evidence on record. Rather the documentary evidences produced on record clearly support the explanation of assessee. The issue is covered in favour of the assessee by the Judgment of Hon ble Delhi High Court in the case of M/s. Adamine Construction Pvt., Ltd. 2018 (2) TMI 1815 - DELHI HIGH COURT (supra). Considering the totality of the facts and circumstances of the case in the light of documentary evidences on record and the decisions referred to above, we do not find any infirmity in the Order of the Ld. CIT(A) in deleting the addition - Decided in favour of assessee.

Issues Involved:
1. Whether the CIT(A) erred in deleting the addition of ?4,96,00,000/- made by the AO on account of unexplained share premium and share capital received by the assessee.
2. Whether the CIT(A) erred in deleting the addition of ?4,84,00,000/- made by the AO on account of unexplained share premium and share capital received by the assessee.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?4,96,00,000/-:
The AO observed that the assessee received ?4,96,00,000/- as share capital and share premium from various companies based in Kolkata. The AO doubted the creditworthiness of these companies, noting that they had meager income and their funds were primarily from share premium and share capital. Consequently, the AO made an addition of ?4.96 crores on account of unexplained share capital/premium.

The CIT(A) deleted this addition, reasoning that the absence of a corporate entity at the last known address is not a reliable basis for concluding that the entity is not genuine. The CIT(A) emphasized that the companies were existing entities in government records, and the assessee had discharged its primary onus by furnishing confirmations, income tax returns, bank accounts, and annual reports of the investors. The CIT(A) noted that the AO did not conduct a thorough investigation to establish the real facts and merely relied on assertions without sufficient evidence. Hence, the addition was deleted.

2. Deletion of Addition of ?4,84,00,000/-:
The AO noted that the assessee received ?4,84,00,000/- as share capital and share premium from companies based in Mumbai. The AO issued a commission under section 131 to verify these companies, but no such companies were found at the given addresses. Consequently, the AO doubted the creditworthiness of these companies and made an addition of ?4.84 crores on account of unexplained share capital/premium.

The CIT(A) deleted this addition, considering that the assessee had provided sufficient documentary evidence such as confirmations, income tax returns, bank accounts, and annual reports of the investors. The CIT(A) pointed out that the AO did not confront the assessee with the field enquiry reports and did not provide an opportunity for cross-examination. The CIT(A) concluded that the assessee had discharged its onus of proving the identity, creditworthiness, and genuineness of the transactions, and no conclusive proof was provided by the AO to justify the addition. Therefore, the addition was deleted.

General Observations:
The Tribunal upheld the CIT(A)'s decision, noting that the AO did not make any substantial enquiry or verification of the documentary evidence provided by the assessee. The Tribunal emphasized that the identity of the investor companies was not in dispute, and the assessee had provided sufficient evidence to prove the creditworthiness and genuineness of the transactions. The Tribunal also referenced several judicial precedents supporting the view that the assessee is not required to prove the source of the source and that mere suspicion without evidence is insufficient for making additions under section 68.

Conclusion:
The Tribunal dismissed the Department's appeal, affirming the CIT(A)'s decision to delete the additions of ?4,96,00,000/- and ?4,84,00,000/- made by the AO on account of unexplained share premium and share capital. The Tribunal concluded that the assessee had discharged its onus of proving the identity, creditworthiness, and genuineness of the transactions, and the AO's additions were not justified.

← Previous Next →