2021 (9) TMI 854 - AT - Income Tax

Addition of cash credit u/s. 68 - share application and premium from directors their concerns - onus to prove - HELD THAT - 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 of the Act. Therefore, we delete the addition made by the assessing officer - Decided in favour of assessee.

Issues Involved:
1. Addition of ?63,00,000 on account of cash credit under Section 68 of the Income Tax Act, 1961 for share application and premium from directors and their concerns.
2. Addition of ?74,25,000 on account of cash credit under Section 68 of the Income Tax Act, 1961 for share application and premium from entities other than directors and their concerns.
3. Taxability of the premium amount of ?1,08,60,000 for alleged violation of Section 78(2) of the Companies Act.

Detailed Analysis:

1. Addition of ?63,00,000 on account of cash credit under Section 68 for share application and premium from directors and their concerns:

The assessee company received ?63,00,000 from its directors and their concerns as share application and premium. The Assessing Officer (AO) added this amount under Section 68, citing that the assessee failed to prove the identity, creditworthiness, and genuineness of the transactions. The AO noted that the directors did not appear in person and only partial compliance was made regarding the submission of documents.

The assessee contended that it had submitted all necessary documents, including the directors' income tax returns, bank statements, balance sheets, and identity proofs. The assessee argued that the identity of the directors was established, and the transactions were genuine and conducted through banking channels. The assessee also highlighted that the directors had substantial creditworthiness, as evidenced by their capital accounts.

The Tribunal observed that the assessee had provided sufficient evidence to establish the identity, creditworthiness, and genuineness of the transactions. The Tribunal noted that the AO did not consider the detailed submissions and documents provided by the assessee. The Tribunal concluded that the addition of ?63,00,000 under Section 68 was not justified and deleted the addition.

2. Addition of ?74,25,000 on account of cash credit under Section 68 for share application and premium from entities other than directors and their concerns:

The assessee received ?74,25,000 from 23 parties other than directors and their concerns. The AO added this amount under Section 68, stating that the assessee failed to prove the identity, creditworthiness, and genuineness of the transactions. The AO issued notices under Section 133(6) and summons under Section 131 to the investors, but many notices were returned unserved or received no response.

The assessee argued that it had provided all necessary documents, including the investors' income tax returns, bank statements, balance sheets, and identity proofs. The assessee also provided updated addresses for the investors and explained that the transactions were conducted through banking channels without any cash deposits.

The Tribunal noted that the assessee had provided sufficient evidence to establish the identity, creditworthiness, and genuineness of the transactions. The Tribunal referred to judicial precedents, including the Supreme Court's decision in Lovely Exports (P) Ltd., which held that once the identity of the share applicants is proved, no addition can be made in the hands of the assessee company. The Tribunal concluded that the addition of ?74,25,000 under Section 68 was not justified and deleted the addition.

3. Taxability of the premium amount of ?1,08,60,000 for alleged violation of Section 78(2) of the Companies Act:

The AO held that the premium amount of ?1,08,60,000 was taxable, citing a violation of Section 78(2) of the Companies Act and the Supreme Court's decision in Bharat Fire Insurance Co. The AO argued that the assessee introduced unaccounted money by issuing shares at a high premium, despite having no track record or goodwill to justify such a premium.

The assessee contended that the premium amount was not written off and was outstanding in the audited financials as on 31.03.2012. The assessee argued that the AO's stand was without any basis and that the premium amount was genuine and received through proper banking channels.

The Tribunal observed that the assessee had provided sufficient evidence to establish the genuineness of the premium amount. The Tribunal noted that the AO did not provide any concrete evidence to prove that the premium amount was unaccounted money. The Tribunal concluded that the addition of ?1,08,60,000 was not justified and deleted the addition.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, deleting the additions made by the AO under Section 68 for share application and premium from directors and their concerns, as well as from other entities. The Tribunal also held that the premium amount of ?1,08,60,000 was not taxable, as the AO failed to provide sufficient evidence to prove that it was unaccounted money. The Tribunal's decision was based on the assessee's compliance with the requirements to prove the identity, creditworthiness, and genuineness of the transactions, as well as relevant judicial precedents.

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