2021 (6) TMI 1013 - AT - Income Tax

Addition u/s 68 - unexplained share Capital and Share Premium - need for share - applicants to appear before the Id AO when they filed confirmations, bank accounts, statements, ITRs and also complied with statutory notices u/s 133 (6) - HELD THAT - Most of the share - applicants were also simultaneously subjected to scrutiny assessment u/s 143(3) wherein the matter of investment in shares of appellant - company and the sources of same were being examined by the AOs. AO could have informed the concerned AO to make any verification he wanted to. As argued that the Id AO is duty bound to inform concerned AO of share - applicant and not to do direct inquiry with them, as held in the decision RANCHHOD JIVABHAI NAKHAVA 2012 (5) TMI 186 - GUJARAT HIGH COURT by the jurisdictional High Court. That the share applicants did not turn up before the Id AO, cannot a reason for addition, when all confirmatory documentary evidences are furnished. Considering these above facts and circumstances, we are of the view that assessee has satisfied three ingredients of the Section 68 , viz (i) identity, (ii) creditworthiness and (iii) genuineness of the transactions.That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed. Estimation of Gross Profit (GP) - No reason of downfall of GP with supporting evidences by assessee - CIT-A deleted the addition - HELD THAT - We note that while deleting the addition on account of estimation of Gross Profit, the CIT(A) held that books of accounts can be rejected only on cogent finding of defects in the books of accounts, when the AO has not examined the books of accounts, there is no question of rejection of the same.We note that there is no infirmity in the conclusion reached by the ld CIT(A). The conclusions arrived at by the ld CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A). - Decided against revenue.

Summary

Issues Involved:

1. Deletion of addition made on account of unexplained share capital and share premium.
2. Deletion of addition made on account of estimation of Gross Profit (GP).

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Share Capital and Share Premium:

The Revenue contested the deletion of an addition amounting to ?5,21,31,100/- made by the Assessing Officer (AO) under section 68 of the Income Tax Act, 1961, on account of unexplained share capital and share premium. The AO had found that the assessee failed to prove the identity, genuineness, and creditworthiness of the investors, as the investors did not appear before the AO despite being summoned. The AO observed that the investors had received the same amount in their bank accounts, which was then transferred to the assessee as investments, indicating that the investments were made out of unsecured loans from entities lacking creditworthiness.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, noting that the assessee had provided documentary evidence, including income tax returns, bank statements, and confirmations from the investors. The CIT(A) emphasized that the majority of the share application money came from the promoters and their relatives, who were independently assessed to tax. The CIT(A) found that the identity, creditworthiness, and genuineness of the transactions were established, as the investors were the promoters and their relatives, and the transactions were reflected in their tax returns and bank statements.

The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee had satisfied the three ingredients of section 68: identity, creditworthiness, and genuineness. The Tribunal noted that the non-appearance of the investors before the AO could not solely justify the addition when substantial documentary evidence was provided. The Tribunal also highlighted that the share applicants were the promoters and their family members, making the transactions genuine.

2. Deletion of Addition on Account of Estimation of Gross Profit (GP):

The Revenue challenged the deletion of an addition amounting to ?71,71,873/- made by the AO on account of estimation of Gross Profit (GP). The AO had rejected the assessee's books of accounts and estimated the GP based on the previous year's GP ratio, as the assessee failed to provide books of accounts, bills, and vouchers for verification. The AO invoked section 145 of the Act, estimating the GP at 0.88% (previous year's GP ratio) instead of the 0.24% declared by the assessee.

The CIT(A) deleted the addition, observing that the assessee had provided computer printouts of the books of accounts and quantitative details of sales and purchases. The CIT(A) noted that the turnover of the assessee had increased significantly, justifying the reduction in the GP ratio. The CIT(A) found no defects in the books of accounts and held that the rejection of the books and the estimation of GP were uncalled for.

The Tribunal upheld the CIT(A)'s decision, agreeing that the AO had not examined the books of accounts and, therefore, could not reject them. The Tribunal found no infirmity in the CIT(A)'s conclusion that the significant increase in turnover justified the reduction in the GP ratio. The Tribunal confirmed the order of the CIT(A), holding that the addition on account of estimation of GP was unwarranted.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the additions made on account of unexplained share capital and share premium, and the estimation of Gross Profit. The Tribunal found that the assessee had provided sufficient documentary evidence to establish the identity, creditworthiness, and genuineness of the transactions, and that the rejection of the books of accounts and the estimation of GP were not justified.