2021 (9) TMI 547 - AT - Income Tax

Addition u/s 68 - bogus share capital - onus to prove - whether assessee has discharged his onus to prove, prima facie, the identity, creditworthiness and genuineness of the share capital and share premium received by it from share subscribers companies? - HELD THAT - All the share applicants are (i) income tax assessee s, (ii) they are filing their return of income, (iii) the share application form and allotment letter is available on record, (iv) the share application money was made by account payee cheques, (v) the details of the bank accounts belonging to the share applicants and their bank statements, (vi) in none of the transactions the AO found deposit in cash before issuing cheques to the assessee company, (vii) the applicants are having substantial creditworthiness which is represented by a capital and reserve as noted above. Thus the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee cannot be brushed aside by the AO to draw adverse view cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the AO, we hold that an addition cannot be sustained merely based on inferences drawn by circumstances - we delete the addition - Decided in favour of assessee.

Issues Involved:
1. Addition of ?1,65,85,000 under Section 68 of the Income Tax Act, 1961 by treating the share capital/share premium received by the assessee as bogus and unexplained.
2. Validity of the reasons and bases mentioned by the CIT(A) for confirming the addition.
3. Compliance with the law and procedure laid down by the Gujarat High Court.

Issue-wise Detailed Analysis:

1. Addition of ?1,65,85,000 under Section 68:
The Assessing Officer (AO) added ?1,65,85,000 to the assessee's income under Section 68 of the Income Tax Act, 1961, treating the share capital/share premium received from three companies as unexplained cash credits. The AO's decision was based on the non-traceability of the companies and lack of response to notices issued under Section 133(6) and Section 131(1)(d). The AO concluded that these companies were not carrying out any actual business activity and were bogus.

2. Validity of the reasons and bases mentioned by the CIT(A):
The CIT(A) upheld the AO's decision, rejecting the assessee’s contention and confirming the addition. The CIT(A) found the assessee's submission and evidence insufficient to prove the identity, creditworthiness, and genuineness of the transactions.

3. Compliance with the law and procedure laid down by the Gujarat High Court:
The assessee argued that the CIT(A)'s decision was contrary to the law and procedure laid down by the Gujarat High Court. The assessee provided various documents to prove the identity, creditworthiness, and genuineness of the share applicants, including PAN numbers, ROC details, balance sheets, profit and loss accounts, bank statements, and income tax returns.

Tribunal’s Findings:

1. Discharge of Onus by the Assessee:
The Tribunal noted that the assessee had provided ample documentation to prove the identity, creditworthiness, and genuineness of the share applicants. These included PAN numbers, ROC filings, bank statements showing transactions, and income tax returns of the share applicants. The Tribunal emphasized that the identity of the share applicants was established through these documents.

2. Creditworthiness and Genuineness:
The Tribunal observed that the creditworthiness of the share applicants was demonstrated through their balance sheets, profit and loss accounts, and bank statements. The genuineness of the transactions was supported by the fact that the share application money was received through banking channels, and the share applicants were registered and active companies as per ROC records.

3. Legal Precedents:
The Tribunal referred to several legal precedents, including the Hon'ble Supreme Court's decision in Sumati Dayal Vs CIT and the Gujarat High Court's decision in Dy. CIT v. Rohini Builders. These cases established that the onus of proving the identity, creditworthiness, and genuineness of the transactions lies with the assessee, and once this is done, the burden shifts to the Revenue to disprove the evidence provided by the assessee.

4. Prospective Application of Amended Section 68:
The Tribunal noted that the amendment to Section 68, which requires a closely held company to explain the source of share capital, share premium, or share application money to the satisfaction of the AO, is applicable only from the assessment year 2013-14. Since the assessment year in question was 2012-13, the amended provisions did not apply to the assessee.

5. Lack of Evidence from AO:
The Tribunal found that the AO did not provide sufficient evidence to disprove the documents furnished by the assessee. The AO's decision was based on inferences drawn from the non-traceability of the companies and lack of response to notices, which was not sufficient to sustain the addition.

Conclusion:
The Tribunal concluded that the assessee had discharged its onus to prove the identity, creditworthiness, and genuineness of the share applicants. The addition of ?1,65,85,000 under Section 68 was deleted, and the appeal of the assessee was allowed. The Tribunal emphasized that an addition cannot be sustained merely based on inferences drawn by circumstances without proper investigation and evidence.

Order Pronounced:
The appeal of the assessee was allowed, and the order was pronounced on 09/09/2021 by placing the result on the notice board.

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