2021 (8) TMI 851 - AT - Income Tax

Addition u/s 68 - receipt of share premium unexplained - assessee had failed to discharge the onus cast upon it u/s 68 of the Income Tax Act,1961 of establishing the true identity, genuineness of creditworthiness of the share applicant - CIT-A deleted the addition - HELD THAT - We concur with the view taken by the CIT(A) that now when the assessee had filed with the A.O the complete details of the 19 share subscribers, viz. names, address, PAN nos., confirmations etc., and still if the A.O was of the view that the share premium was received by the assessee from bogus shareholders, then, it was open for him to proceed against such share subscribers and could not have assessed the said amount as an unexplained cash credit in the hands of the assessee company. Our aforesaid view is supported by the judgment of the Hon ble Supreme Court in the case of CIT Vs. Lovely Export Pvt. Ltd. 2008 (1) TMI 575 - SC ORDER . Also a similar view qua the pre-amended Sec. 68 of the Act i.e the assessee can be asked to prove the source of credit in books, but cannot be asked to prove the source of the source Assessee had beyond doubt on the basis of substantial material filed with the A.O proved the identity, creditworthiness and genuineness of the transactions in question, therefore, the share premium of ₹ 2.25 crore received by it from the aforementioned 19 share subscribers could not have held as an unexplained cash credit within the meaning of Sec. 68 - We, thus, finding no infirmity in the view taken by the CIT(A) who had rightly held that as the assessee had duly discharged the onus that was cast upon it as regards proving the identity, creditworthiness and genuineness of transactions in question, therefore, the share premium of ₹ 2.25 crore received from the 19 share subscribers could not have been assessed as an unexplained cash credit u/s 68 of the Act, uphold his view. No infirmity in the very well reasoned order of the CIT(A), uphold the view taken by him that the share premium of ₹ 2.25 crore received by the assessee during the year under consideration could not be held as an unexplained cash credit within the meaning of Sec. 68 of the Act. Accordingly, finding no merit in the appeal of the revenue we dismiss the same.

Issues Involved:
1. Deletion of addition of ?2,25,00,000/- under Section 68 of the Income Tax Act.
2. Alleged colorable transaction under the guise of share premium.
3. Reliance on retracted affidavits.
4. Evidentiary value of statements recorded under Section 131.
5. Applicability of the Supreme Court judgment in the case of Principal Commissioner of Income Tax (Central - 1) Vs NRA Iron & Steel Pvt. Ltd.
6. Justification of the CIT(A)'s order.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of ?2,25,00,000/- under Section 68 of the Income Tax Act:
The revenue challenged the CIT(A)'s decision to delete the addition of ?2,25,00,000/- made under Section 68 on account of share premium received by the assessee. The AO initially added this amount as unexplained cash credit, asserting that the assessee failed to establish the identity, genuineness, and creditworthiness of the share applicants. However, the CIT(A) found that the assessee had provided substantial documentary evidence, including PAN, addresses, bank statements, and share application forms, to substantiate the transactions. The CIT(A) concluded that the assessee had discharged its onus, and the AO had not conducted independent inquiries to disprove the evidence provided.

2. Alleged Colorable Transaction Under the Guise of Share Premium:
The revenue argued that the modus operandi detected during the search/survey indicated a colorable transaction by the assessee under the guise of share premium. The AO based this on statements from certain individuals during the survey proceedings, alleging that the Podar Group was involved in siphoning donations and routing them as share application money. However, the CIT(A) noted that these statements were retracted, and no incriminating material was found during the search to support the AO's claim. The CIT(A) emphasized that the AO's conclusions were based on assumptions and lacked corroborative evidence.

3. Reliance on Retracted Affidavits:
The AO relied on statements from individuals recorded during the survey proceedings, which were later retracted through affidavits. The CIT(A) admitted these retraction affidavits as additional evidence under Rule 46A, considering their material bearing on the case. The CIT(A) noted that the AO did not re-examine the individuals to verify the retractions and failed to provide corroborative evidence to support the original statements. The CIT(A) concluded that the retractions, coupled with the lack of independent verification by the AO, diminished the evidentiary value of the original statements.

4. Evidentiary Value of Statements Recorded Under Section 131:
The CIT(A) observed that the statements relied upon by the AO were recorded under Section 131 during survey proceedings under Section 133A, which do not have evidentiary value as per judicial precedents. The CIT(A) cited judgments, including those from the Hon'ble Supreme Court, stating that statements recorded under Section 133A are not conclusive evidence. The CIT(A) emphasized that the AO should have gathered corroborative evidence instead of relying solely on these statements.

5. Applicability of the Supreme Court Judgment in the Case of Principal Commissioner of Income Tax (Central - 1) Vs NRA Iron & Steel Pvt. Ltd.:
The revenue argued that the CIT(A) did not uphold the additions in light of the Supreme Court judgment in NRA Iron & Steel Pvt. Ltd., which emphasized careful scrutiny of practices involving conversion of unaccounted money. However, the CIT(A) distinguished the present case, noting that the assessee had provided substantial evidence to establish the genuineness of the transactions. The CIT(A) also highlighted that the AO failed to bring on record any material linking the alleged siphoning of funds to the share premium received by the assessee.

6. Justification of the CIT(A)'s Order:
The CIT(A) concluded that the AO's addition of ?2,25,00,000/- as unexplained cash credit was based on assumptions and lacked corroborative evidence. The CIT(A) emphasized that the assessee had provided substantial documentary evidence to prove the identity, creditworthiness, and genuineness of the share applicants. The CIT(A) also noted that the AO did not conduct independent inquiries or issue notices to the share applicants. The CIT(A) relied on judicial precedents, including the Hon'ble Supreme Court's judgment in Lovely Exports Pvt. Ltd., to support the decision to delete the addition.

Conclusion:
The ITAT upheld the CIT(A)'s order, finding no merit in the revenue's appeal. The ITAT agreed with the CIT(A) that the assessee had discharged its onus by providing substantial evidence, and the AO failed to disprove the evidence or conduct independent inquiries. The ITAT also concurred with the CIT(A) that the retracted statements lacked evidentiary value and that the AO's conclusions were based on assumptions without corroborative evidence. The ITAT dismissed the revenue's appeal, affirming the deletion of the addition of ?2,25,00,000/- under Section 68.

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