2022 (12) TMI 1010 - AT - Income Tax

Unaccounted income u/s 68 - unexplained share capital and share premium - unaccounted income of the appellant assessee company from Share Capital and Share Premium raised - HELD THAT - Assessee has successfully discharged its primary onus by explaining the source of share capital and share premium received during the year. In the remand report, AO has confirmed that all the investor companies were PAN holders and has filed the returns regularly. No cash was found to be deposited in the bank accounts maintained by the investor companies. All the companies are regularly filing returns with the Registrar of Companies. Books of account are regularly maintained and duly audited. Companies had sufficient funds and decision of investment was made by Board of Directors. AO has also stated that statement of the director was verified from information contained in paper-book in respective assessment. As observed by the AO that transactions and credit of capital including premium are found in order and there is no deficiency in supporting evidence. The remand report of AO is loud and clear that the source of share capital and share premium has been successfully explained to the best possible extent by the assessee furnishing all evidences and none of them were found to be incorrect and no defect has been pointed out. We fail to find any justification in the finding of ld. CIT(A) confirming the action of the AO making addition u/s 68 - Decided in favour of assessee.

Issues Involved:
1. Legality and validity of the CIT(A)'s order.
2. Addition of Rs. 1,05,00,000/- as unaccounted income under Section 68 of the Income Tax Act.
3. Genuineness of the share capital and share premium raised by the assessee company.
4. Assessment of the identity and creditworthiness of the share subscribers.
5. Evaluation of the evidence provided by the assessee.

Detailed Analysis:

1. Legality and Validity of the CIT(A)'s Order:
The assessee challenged the order passed by the CIT(A) as unwarranted, arbitrary, invalid, and bad-in-law. The Tribunal examined the procedural aspects and found that the CIT(A) had followed due process, including calling for a remand report from the Assessing Officer (AO). The Tribunal did not find any procedural lapses or legal infirmities in the CIT(A)'s order.

2. Addition of Rs. 1,05,00,000/- as Unaccounted Income under Section 68:
The AO made an addition of Rs. 1,06,00,000/- under Section 68, which included share capital of Rs. 2,05,000/- and share premium of Rs. 1,03,95,000/-. However, the Tribunal noted that the correct figure for share capital was Rs. 1,05,000/-, making the total addition Rs. 1,05,00,000/-. The AO's addition was based on the observation that the investor companies were in initial years of operation, had no business activity, and showed normal income/loss, thus questioning the genuineness of the transactions.

3. Genuineness of the Share Capital and Share Premium Raised:
The assessee provided various documents to prove the genuineness of the transactions, including income tax returns, audited balance sheets, bank statements, share application forms, and board resolutions. The AO, however, relied on general theories and the decision in the case of M/s Bisakha Sales Pvt. Ltd., which the Tribunal found to be distinguishable and not applicable to the assessee's case.

4. Assessment of the Identity and Creditworthiness of the Share Subscribers:
The Tribunal examined the evidence provided by the assessee, which included ITR acknowledgements, final accounts, bank statements, and explanations regarding the investment in equity shares at a premium. The remand report confirmed that the investor companies were PAN holders, regularly filed returns, and had sufficient funds. The Tribunal found that the assessee had successfully discharged its primary onus of proving the identity and creditworthiness of the share subscribers.

5. Evaluation of the Evidence Provided by the Assessee:
The Tribunal observed that the assessee had provided all necessary evidence to support the genuineness of the share capital and share premium. The remand report from the AO confirmed that the transactions and credit of capital, including premium, were in order and no deficiency in supporting evidence was found. The Tribunal also referred to several judicial precedents, including CIT vs. Gagandeep Infrastructure (P) Ltd., PCIT vs. Chain House International (P) Ltd., and CIT vs. Kamdhenu Steel & Alloys Limited, to support its view that the assessee had successfully explained the source of share capital and share premium.

Conclusion:
The Tribunal concluded that the assessee had successfully discharged its onus of proving the identity and creditworthiness of the share subscribers and the genuineness of the transactions. The addition of Rs. 1,05,00,000/- made by the AO under Section 68 was not justified. The Tribunal reversed the findings of the CIT(A) and allowed the appeal of the assessee.

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