2021 (7) TMI 361 - AT - Income Tax

Unexplained cash credit u/s 68 - addition on account of share capital share premium - HELD THAT - We note that assessee company has discharged its onus to prove three ingredients of section 68, namely, the identity, creditworthiness and genuineness of the share capital and share premium received by it from share subscribers companies. 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 and 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 applicants. 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 - CIT(A) has rightly deleted the addition. - Decided against revenue.

Issues Involved:
1. Deletion of additions on account of unexplained cash credit under Section 68 of the Income Tax Act.
2. Genuineness and creditworthiness of share application money received from three companies.
3. Acceptance of fresh evidence by the CIT(A) without remanding the matter to the AO.
4. Whether the CIT(A) should have upheld the AO's order.

Detailed Analysis:

1. Deletion of Additions on Account of Unexplained Cash Credit Under Section 68:
The Revenue contended that the CIT(A) erred in deleting the additions of ?1,80,00,000 on account of unexplained cash credit under Section 68 of the Income Tax Act, 1961. The AO had added this amount as unexplained cash credit because the assessee failed to prove the identity, creditworthiness, and genuineness of the transactions from three companies: Yash Buildhome Developers Ltd., Yash Tradex Overseas Pvt. Ltd., and Yash IT Solutions Pvt. Ltd. The CIT(A) deleted the addition, accepting the assessee's submission of various documents, including share application forms, bank statements, and audited financial statements.

2. Genuineness and Creditworthiness of Share Application Money:
The AO found discrepancies in the audit reports and bank statements of the three investor companies, leading to the conclusion that the transactions were not genuine. The AO issued a show cause notice to the assessee, who responded with supporting documents. However, the AO rejected the explanation and made the addition under Section 68. The CIT(A), upon review, found that the assessee had provided sufficient evidence to establish the identity, creditworthiness, and genuineness of the share applicants. The CIT(A) noted that the share applicants were income tax assessees, and their transactions were conducted through proper banking channels.

3. Acceptance of Fresh Evidence by the CIT(A):
The Revenue argued that the CIT(A) accepted fresh evidence regarding the identity, creditworthiness, and genuineness of the transactions without remanding the matter to the AO, which was against the set principles. The CIT(A) reviewed the documents and inquiries conducted by the AO and found that the AO's conclusions were based on incorrect or incomplete information. The CIT(A) observed that the AO did not make sufficient efforts to verify the details provided by the assessee and the share applicants.

4. Whether the CIT(A) Should Have Upheld the AO's Order:
The Revenue contended that the CIT(A) should have upheld the AO's order. However, the CIT(A) found that the AO's findings were erroneous and based on conjectures and surmises. The CIT(A) noted that the AO did not establish the non-existence of the investor companies or the non-genuineness of the transactions. The CIT(A) concluded that the assessee had discharged its onus to prove the identity, creditworthiness, and genuineness of the share capital and share premium received.

Conclusion:
The Tribunal upheld the CIT(A)'s order, noting that the assessee had provided ample evidence to establish the identity, creditworthiness, and genuineness of the share applicants. The Tribunal emphasized that the AO should have sought further clarification from the investor companies rather than drawing adverse conclusions based on incomplete information. The Tribunal also referenced various judicial precedents supporting the CIT(A)'s findings and dismissed the Revenue's appeal.

Final Order:
The appeal of the Revenue was dismissed, and the CIT(A)'s order deleting the addition of ?1,80,00,000 under Section 68 was upheld. The Tribunal concluded that the assessee had satisfactorily explained the nature and source of the share application money, and no addition was warranted under Section 68 of the Income Tax Act.

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