2021 (10) TMI 457 - AT - Income Tax

Addition u/s 68 - unexplained cash credit in the garb of share application money / premium - Assessee company has received share application money from three parties. Two of them were Directors and one was a corporate entity - Director of the subscriber company did not appear personally - HELD THAT - In so far as the share application money received from Directors, the AO has held the genuine transaction of the subscriber stood satisfactorily explained. In the case of share application money from corporate entity first of all the assessee discharged its onus by filing the copy of confirmation along with documents like, PAN, bank statement of the subscriber company, copy of income tax return alongwith audited accounts, etc., statement from the MCA website showing that the company is live working company. Thereafter, the AO himself carried out inquiry from the said parties and notice u/s 133(6) was sent asking for various details to corroborate the stand of the assessee. In response, the said company replied to the said notices and in fact two times reply was sent, i.e., vide letter dated 19.1.2015 and 5.3.2015. The party not only confirmed the said transaction but also explained the source of investment alongwith the set of documents as mentioned in the assessment order itself as well as in the impugned appellate order. The bank statement furnished by the said company reflected a transfer of ₹ 1,00,00,000/- of each on two occasions from its bank account with the Axis Bank to the bank account of the assessee on 10.8.2011. The company also stated that it assessed to tax income tax and duly reflected the said investment in the balance sheet. Ld. CIT (A) has also noticed that this company had sufficient source of funds in the form of share capital and reserves as per balance sheet. Apart from that, there is a categorical finding by the Ld. CIT(A) that there is no cash deposit in the bank account of share subscriber prior to issue of funds. Further, in so far as second discrepancy in the number of shares subscribed by M/s. Omexpo Enterprises Pvt. Ltd., the same was reconciled along with the share certificate filed before the Ld. CIT (A) which has been discussed in detail by him. Thus, in so far as assessee is concerned entire onus should discharge and even in the inquiry conducted by the AO, no adverse material has been found as the party has provided all the necessary details to prove the genuineness of the transaction. In these circumstances, we do not find any reason as to why the transaction has been doubted by the AO without any adverse material found during the course of inquiry conducted by the AO. Simply because Director of the subscriber company did not appear personally that does not mean that all other documents sent by the said company which are mostly statutory records as well as the income tax records can make the transaction fictitious. Thus, we do not find any infirmity in the finding and observation of the Ld. CIT(A) while deleting the said addition. As brought on record by the Ld. Counsel, the AO subsequently based on certain information emanating from search in some other case on 29.3.2012, came to the conclusion that the amount of ₹ 2,00,00,000/- is an accommodation entry and again the same amount has been added. This has been added despite noting the fact that already Ld. CIT (A) has deleted the same addition vide order dated 23.3.2017. If the same addition has been made again, then we do not find any justification for challenging the said addition in the present appeal. On this count also the ground raised by the revenue cannot be sustained - Decided against revenue.

Summary

Issues Involved:

1. Deletion of addition made under Section 68 of the Income Tax Act.
2. Identity, genuineness, and creditworthiness of transactions.
3. Acceptance of transactions based on banking channels.
4. Share subscribers' profit-making apparatus and rotation of money.
5. Right to amend grounds of appeal.

Issue-Wise Detailed Analysis:

1. Deletion of Addition Made Under Section 68:
The Revenue filed an appeal against the deletion of the addition of ?2,00,00,000/- made under Section 68 of the Income Tax Act by the CIT(A). The Assessing Officer (AO) had added this amount as unexplained cash credit received by the assessee company in the form of share application money/premium. The AO deduced that no actual transaction of share capital took place and concluded that the sum of ?2,00,00,000/- was not genuine, thus making the addition under Section 68.

2. Identity, Genuineness, and Creditworthiness of Transactions:
The AO questioned the identity, genuineness, and creditworthiness of the transactions, referencing the judgment of the Hon'ble Delhi High Court in the case of M/s Nova Promoters and Finlease Pvt Ltd. The AO noted discrepancies in the information provided by the assessee and the share subscribers, particularly Omexpo Enterprises Pvt. Ltd. However, the CIT(A) found that the assessee had provided sufficient documents, such as PAN, bank statements, IT returns, and balance sheets, to establish the identity and creditworthiness of the share applicant. The CIT(A) observed that the share applicant had sufficient sources of funds to invest in the assessee company, as evidenced by its balance sheet.

3. Acceptance of Transactions Based on Banking Channels:
The AO argued that the transactions being through banking channels did not reflect genuine business activities. However, the CIT(A) noted that the share capital/share premium was paid via banking channels and that there was no cash deposit in the bank account of the share subscriber prior to the issue of funds. The CIT(A) concluded that this aspect of the transactions was genuine.

4. Share Subscribers' Profit-Making Apparatus and Rotation of Money:
The AO observed that the share subscribers did not have their own profit-making apparatus and merely rotated money through bank accounts, questioning their creditworthiness. The CIT(A) countered this by stating that the creditworthiness of a party is not gauged merely from the income/loss of a particular year but from the overall financial position, which in this case, showed sufficient reserves and share capital.

5. Right to Amend Grounds of Appeal:
The Revenue reserved the right to amend, modify, alter, add, or forego any grounds of appeal at any time before or during the hearing. However, this point did not materially affect the outcome of the case.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition of ?2,00,00,000/-. It was noted that the assessee had discharged its onus by providing necessary documents and that the AO did not find any adverse material during the inquiry. The Tribunal found no reason to doubt the transaction merely because the Director of the subscriber company did not appear personally. Additionally, the Tribunal noted that the same addition was made again in proceedings under Section 148, which lacked justification. Consequently, the appeal of the Revenue was dismissed.