2022 (8) TMI 1183 - AT - Income Tax

Unexplained cash credit - Addition u/s 68 - increased share capital - HELD THAT -. Honourable Delhi High Court in the case of Steller Investment Ltd. 1991 (4) TMI 100 - DELHI HIGH COURT held that it is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. If the assessment of the persons, who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself. As assessee has successfully discharged its onus by proving the identity, genuineness of the transaction and the creditworthiness of these two share applicants namely Sadgi Agarwal and Milestone Commosales Pvt. Ltd. which utilised the loan taken from another company namely M/s. Tobu Engineering Ltd. for making investment in the assessee company and also under the given facts and circumstances where the share application money received from M/s. Tobu Engineering Ltd. by the assessee stands explained before Ld. CIT(A), we find no merit in the addition made by Ld. AO. We, therefore, reverse the finding of Ld. CIT(A) and delete the addition made u/s 68. - Decided in favour of assessee.

Summary

Issues:
Appeal against order passed under section 250 of the Income Tax Act, 1961 for Assessment Year 2012-13 challenging addition of unexplained cash credit under section 68 of the Act.

Analysis:
1. The assessee issued equity shares at a premium, leading to scrutiny by the Assessing Officer (AO) who made additions for unexplained cash credit under section 68 of the Act. The Commissioner of Income-tax (Appeals) (CIT(A)) partially allowed the appeal, sustaining an addition of Rs. 35 lakh for share application money received from two entities.

2. The Tribunal observed that the identity and genuineness of the share applicants were not in dispute. The critical issue was the creditworthiness of the share applicants. The assessee provided bank account details showing that the share applicants received loans from another entity, establishing their ability to invest in the assessee company.

3. Notably, the Tribunal found that the share applicants had sufficient credit in their accounts to make the investments, supported by transactions with the entity from which they received loans. The Tribunal also highlighted that the net worth of the lending entity was substantial, indicating its creditworthiness and validating the source of funds for the investments.

4. Referring to legal precedents, the Tribunal emphasized that if the Revenue does not question the source of funds or creditworthiness adequately, the addition under section 68 cannot be justified. Citing judgments, the Tribunal underscored the need for the Revenue to demonstrate that the investment originated from the assessee's funds to treat it as undisclosed income.

5. Ultimately, the Tribunal concluded that the assessee had fulfilled its burden of proving the identity, genuineness, and creditworthiness of the share applicants. Given the established source of funds and the lack of evidence challenging the transactions, the Tribunal reversed the CIT(A)'s decision and deleted the addition of Rs. 35 lakh under section 68 of the Act.

6. In light of the above analysis, the Tribunal allowed the assessee's appeal, emphasizing the importance of substantiating the source of funds and creditworthiness to avoid additions under section 68 of the Income Tax Act, 1961.