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2021 (8) TMI 926 - AT - Income TaxAddition u/s 68 - unexplained cash credit - amount received by the assessee from the NRIs - creditworthiness of the parties who have subscribed the shares of the assessee company - HELD THAT - On making the reference to the average conversion rate of the dollar into Indian currency, on the basis of information available on Google as applicable for the year 2011 and 2012. The return of income in Indian currency works out at ₹ 2,25,14,877/- only ( 2,20,215 ₹ 47 2,29,524 ₹ 53) for Shri Mayur Patel and ₹ 1,29,44,382/- only for Shri Vimal Patel. Based on these documents, we can draw an inference that there were sufficient funds available with these investors namely Shri Mayur Patel and Shri Vimal Patel for acquiring the shares of the assessee company. Accordingly, we do not find any infirmity in the order of the learned CIT (A) for the deletion made by him with respect to these two investor. Coming to the remaining three investors namely Shri Divyesh Patel, Ketu Patel and Rima Patel who have subscribed shares of the assessee company. In this connection we note that the assessee has not filed any copy of the income tax return filed by them in their country of residence i.e. USA. Likewise, the assessee has also not filed the bank statement of these parties maintained by them in their country of residence except the NRE accounts maintained in India. Admittedly, all the transactions were routed through the banking channel i.e. NRE account. In this regard, we find that there is a circular issued by the CBDT bearing number 05 of 1969 dated 20-02-1969 wherein it was instructed that there cannot be any tax liability on the amount remitted by the NRI in India for investment in India Thus the amount received by the assessee from the NRIs in the manner as discussed above cannot be treated as unexplained cash credit under the provisions of section 68 of the Act. Accordingly, there is no question for treating the amount of share capital received by the assessee as unexplained cash credit under section 68 - Appeal of the assessee is allowed.
Issues Involved:
1. Confirmation of addition of ?80,00,000/- out of total addition of ?2,56,50,000/- under Section 68 of the Income Tax Act, 1961. 2. Failure of the assessee to discharge the onus under Section 68 of the Income Tax Act. 3. Legality of the assessment order passed by the Assessing Officer (AO). 4. Levy of interest under Sections 234A, 234B, 234C, and 234D of the Income Tax Act. 5. Dismissal of the ground challenging the initiation of penalty proceedings under Section 271(l)(c). Detailed Analysis: 1. Confirmation of Addition of ?80,00,000/-: The assessee, a private limited company engaged in the manufacturing of Guar Gum Powder, received share application money totaling ?2,56,50,000/- from five NRIs residing in the USA. The AO treated the entire amount as unexplained cash credit under Section 68 of the Act, citing insufficient evidence to prove the creditworthiness of the investors. However, the CIT(A) partially allowed the appeal, deleting ?1,76,50,000/- and confirming the addition of ?80,00,000/-. 2. Failure to Discharge Onus Under Section 68: The assessee provided several documents, including ledger accounts, bank statements, passport copies, and statements of specified financial assets. Despite these submissions, the AO was not satisfied with the evidence regarding the creditworthiness of the parties. The CIT(A) found that the assessee had sufficiently proved the identity and genuineness of transactions for two investors, Mayur Patel and Vimal Patel, and deleted the corresponding additions. However, for the remaining three investors, the CIT(A) upheld the addition due to lack of sufficient evidence. 3. Legality of the Assessment Order: The assessee argued that the assessment order was illegal and contrary to the settled legal position by the Apex Court and jurisdictional High Court. However, this issue was not elaborated upon in the judgment, and the primary focus remained on the addition under Section 68. 4. Levy of Interest Under Sections 234A, 234B, 234C, and 234D: The assessee contended that the CIT(A) erred in not upholding the claim against the levy of interest under Sections 234A, 234B, 234C, and 234D. This issue was not specifically addressed in the detailed analysis of the judgment. 5. Dismissal of Ground Challenging Penalty Proceedings: The CIT(A) dismissed as premature the ground challenging the initiation of penalty proceedings under Section 271(l)(c). The assessee argued that there was no justification for initiating penalty proceedings, but this contention was not accepted. Conclusion: The Tribunal upheld the CIT(A)'s decision to delete the addition of ?1,76,50,000/- for two investors, Mayur Patel and Vimal Patel, as their creditworthiness was sufficiently proven through income tax returns and bank statements. For the remaining three investors, the addition of ?80,00,000/- was confirmed due to insufficient evidence of creditworthiness. The appeal by the assessee was allowed, and the appeal by the Revenue was dismissed, concluding that the share capital received from NRIs through banking channels cannot be treated as unexplained cash credit under Section 68 of the Act.
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