2022 (7) TMI 159 - AT - Income Tax

Addition u/s 68 - unexplained share capital - as per AO no documentary evidences to prove the genuineness of the transactions as well as the identity and creditworthiness of the investors given - HELD THAT - AO took no steps to verify the creditworthiness of the creditors or identity of the subscribers to ascertain that the transactions were genuine or whether these were bogus entries of money lenders and, therefore, we are of the considered view that the judgement of the Hon ble Apex Court in the case of NRA Iron Steel Pvt. Ltd. 2019 (3) TMI 323 - SUPREME COURT does not help the case of the Department. Hon'ble Delhi High Court in the case of M/s Nova Promoters and Finlease (P) Ltd 2012 (2) TMI 194 - DELHI HIGH COURT wherein the Hon'ble High Court has pointed out that the evidence or the material adduced by the assessee cannot be thrown out without any inquiry. In the present case, there exists no material to implicate the assessee for the failure to produce the common director or the failure to explain the source of source when the AO himself has not conducted any inquiry which could indicate that the impugned transactions were not genuine. In our considered view, the suspicion however strong cannot substitute the documentary evidence, until proved to be false. Therefore, in our considered opinion, the impugned addition on the facts of the case is not sustainable. Also we would like to make a reference to the judgement of the Hon'ble Apex Court in the case of CIT vs Lovely Exports 2008 (1) TMI 575 - SC ORDER held that if the share application money is received by the assessee company from alleged bogus shareholders whose names are given to the AO, then the Department is free to proceed to reopen their individual assessment in accordance with law but it cannot be regarded as undisclosed income of the assessee company. Therefore, for the reasons given in the preceding paragraphs, we hold that the impugned addition u/s 68 of the Act is not sustainable in the eyes of law and while setting aside the order of the Ld. CIT(A), we direct the AO to delete the impugned addition. - Decided in favour of assessee.

Issues Involved:
1. Addition of Rs. 50,00,000/- under Section 68 of the Income Tax Act, 1961.
2. Genuineness of share capital and share premium transactions.
3. Compliance with the identity, creditworthiness, and genuineness requirements.
4. Reliance on judicial precedents and their applicability.
5. Assessment of the onus of proof and burden of evidence.

Issue-wise Detailed Analysis:

1. Addition of Rs. 50,00,000/- under Section 68 of the Income Tax Act, 1961:
The Assessing Officer (AO) added Rs. 50,00,000/- to the income of the assessee under Section 68 of the Income Tax Act, 1961, on the grounds that the assessee failed to prove the genuineness, identity, and creditworthiness of the shareholders who invested in the company. The AO noted that the assessee could not produce the common director of the investing companies, and the addresses of some companies were found to be non-existent. The AO concluded that the transactions were not genuine and added the amount to the income of the assessee.

2. Genuineness of Share Capital and Share Premium Transactions:
The assessee raised share capital and share premium from six investing companies. The AO required the assessee to prove the identity, creditworthiness, and genuineness of these transactions. The assessee provided copies of bank statements, ITRs, PAN cards, and confirmations from the investors. However, the AO found that the addresses of some companies were non-existent and that the assessee could not produce the common director, Shri Tarun Kumar Sah, due to demonetization. The AO concluded that the transactions were not genuine and added the amount to the income of the assessee.

3. Compliance with the Identity, Creditworthiness, and Genuineness Requirements:
The assessee argued that it had provided all necessary documents to prove the identity, creditworthiness, and genuineness of the transactions. The assessee submitted that the inability to produce the common director was due to demonetization, and it had requested additional time to produce him. The assessee also provided a valuation of the company using the Discounted Free Cash Flow (DCF) method to justify the share premium, which was ignored by the lower authorities. The Tribunal noted that the primary requirement of furnishing relevant documents was fulfilled by the assessee, and the onus shifted to the AO to make further inquiries rather than rejecting the submissions on mere suspicion.

4. Reliance on Judicial Precedents and Their Applicability:
The AO and CIT(A) relied on various judicial precedents to support their findings. The Department heavily relied on the judgment of the Hon'ble Apex Court in the case of PCIT Vs. NRA Iron & Steel Pvt Ltd. However, the Tribunal distinguished the facts of the present case from the NRA Iron & Steel case, noting that the assessee had provided necessary documents and that the AO did not conduct an independent inquiry to verify the genuineness of the credit entries. The Tribunal also referred to the judgment in the case of CIT Vs. Lovely Exports, where it was held that if the share application money is received from alleged bogus shareholders, the Department is free to reopen their individual assessments but cannot regard it as undisclosed income of the assessee company.

5. Assessment of the Onus of Proof and Burden of Evidence:
The Tribunal observed that the assessee had fulfilled the primary requirement of proving the identity, creditworthiness, and genuineness of the transactions by providing necessary documents. The onus then shifted to the AO to conduct further inquiries, which the AO failed to do. The Tribunal noted that the suspicion, however strong, cannot substitute documentary evidence unless proved to be false. The Tribunal concluded that the addition under Section 68 was not sustainable and directed the AO to delete the impugned addition.

Conclusion:
The Tribunal allowed the appeal of the assessee, setting aside the order of the CIT(A) and directing the AO to delete the addition of Rs. 50,00,000/- made under Section 68 of the Income Tax Act, 1961. The Tribunal emphasized the need for the AO to conduct independent inquiries and not to rely on mere suspicion to reject the assessee's submissions and evidence. The judgment highlighted the importance of fulfilling the primary onus and the subsequent duty of the AO to verify the genuineness of transactions.

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