2022 (9) TMI 645 - AT - Income Tax

Addition u/s 68 - share capital issued at the premium treated as unexplained cash credit - HELD THAT - The action of the AO is not justifiable for the reason that the assessee has discharged the onus cast upon it under section 68 of the Act by furnishing necessary details to prove identity, genuineness of transaction and creditworthiness of the parties. However, the AO without pointing out any defect in the documentary evidences submitted by the assessee and investor companies in compliance to notice under section 133(6) treated the impugned transaction of share capital and premium as unexplained merely on basis of some surmise and conjecture. AO has nowhere brought any material on record suggesting any defect in the evidences available before him. Similarly, there was no allegation that there were cash exchanged between assessee and investor companies. In the absence of any conclusive finding it is difficult to reach to the conclusion that the amount of share capital and premium received from outside companies are nothing but unaccounted money of the assessee taken in books in guise of share capital premium. The action of the AO is nothing but surmises and conjecture. It is trite law that suspicion how strong it is cannot be made basis for making any adverse inference against the assessee Assessee has fully discharged its onus cast under section 68 of the Act and proved the genuineness of the credit of the share capital and premium in its books of account. Once the transaction of share capital and premium thereon held to be genuine, there is no question of any commission expenses for getting alleged bogus entry on account of such transaction. Therefore we do not find any reason to interfere in the finding of the learned CIT-(A). - Decided in favour of assessee.

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act, 1961.
2. Justification of share premium valuation.
3. Genuineness of the transactions and identity and creditworthiness of the investor companies.
4. Alleged commission expenses for obtaining bogus share capital.

Issue-Wise Detailed Analysis:

1. Deletion of Addition under Section 68 of the Income Tax Act, 1961:
The Revenue challenged the deletion of an addition made by the Assessing Officer (AO) amounting to Rs. 2,25,00,000/- under Section 68 of the Income Tax Act, 1961. The AO had treated the share capital issued at a premium as unexplained cash credit. The Commissioner of Income Tax (Appeals) [CIT(A)] observed that the AO did not specify how the assessee failed to meet the requirements of Section 68. The CIT(A) noted that the assessee had provided sufficient documentary evidence, including PAN cards, certificates of incorporation, bank statements, and share certificates, to prove the genuineness of the transactions. The CIT(A) also referred to the decision of the Hon'ble Gujarat High Court in Hindustan Inks and Resins Ltd., which held that once the identity of the subscriber is proved, no addition can be made in the hands of the recipient company.

2. Justification of Share Premium Valuation:
The assessee justified the share premium valuation by submitting a valuation report from a qualified chartered accountant, which valued the shares at Rs. 497 per share. The assessee explained that the project undertaken was lucrative due to its location in an industrial area, which increased the land's value. The shares were issued to comply with bank requirements for financing. The Tribunal noted that there is no restriction under the Act for a company to issue shares at a premium, and it is the prerogative of the company's Board of Directors and the subscribers to decide on the premium amount.

3. Genuineness of the Transactions and Identity and Creditworthiness of the Investor Companies:
The Tribunal examined whether the assessee had established the identity, creditworthiness of the parties, and genuineness of the transactions. The assessee provided PAN details, ITR acknowledgments, bank statements, and other documents to prove the identity and creditworthiness of the investor companies. The Tribunal noted that the AO's skepticism was based on the project's location and the lack of personal acquaintance between the directors of the assessee and the investor companies. However, the Tribunal found that the assessee had discharged its onus under Section 68 by providing sufficient documentary evidence, and the AO had not brought any material on record to disprove these documents.

4. Alleged Commission Expenses for Obtaining Bogus Share Capital:
The AO had assumed that the assessee incurred commission expenses at 3% of the gross transaction for obtaining bogus share capital and added Rs. 6,75,000/- to the total income. The CIT(A) deleted this addition, noting that there was no evidence to support the AO's assumption. The Tribunal upheld this finding, stating that once the share capital and premium were held to be genuine, there was no basis for assuming any commission expenses for obtaining bogus entries.

Conclusion:
The Tribunal concluded that the assessee had sufficiently discharged its onus under Section 68 of the Act by providing necessary details to prove the identity, genuineness of the transaction, and creditworthiness of the parties. The AO's action was based on surmises and conjectures without any conclusive evidence. Therefore, the Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order deleting the addition of Rs. 2,25,00,000/- and the alleged commission expenses of Rs. 6,75,000/-. The Tribunal emphasized that suspicion, however strong, cannot be the basis for making an adverse inference against the assessee. The appeal of the Revenue was dismissed, and the order was pronounced on 27/04/2022 at Ahmedabad.

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