2023 (2) TMI 838 - AT - Income Tax

Addition u/s 68 - Unexplained share capital share premium money received - addition made as investor companies have low income - HELD THAT - Assets in the form of investments have been created through rotation of money in between the group companies and that the assets mainly consist of cash and cash equivalents. The above contentions raised by the CIT(A), in our view, are not enough to prove that any unaccounted money of the assessee has been introduced in the assessee company, warranting addition under section 68 of the Income Tax Act. Even after making elaborate exercise of examining the documents, CIT(A) could not point out any rebuttal to the above evidences furnished by the assessee to prove the identity, creditworthiness of the share subscribers and genuineness of the transaction. In the case of PCIT vs. Anmol Stainless (P.) Ltd. 2022 (2) TMI 649 - CALCUTTA HIGH COURT has held that that where it has been sufficiently established that share applicants had substantial creditworthiness and investments had been made by assessee's own sister concern/group companies having mostly common directors and thus, establishing creditworthiness and genuinity of investments, additions under section 68 had been rightly been deleted. Appeal of assessee allowed.

Summary

Issues Involved:

1. Whether the addition of Rs. 14,63,00,000/- under Section 68 of the Income Tax Act, being share capital and share premium money received, was justified.
2. Whether the identity, creditworthiness of the share subscribers, and genuineness of the transaction were sufficiently established by the assessee.

Detailed Analysis:

Issue 1: Addition under Section 68 of the Income Tax Act

The Assessing Officer (AO) noted that the assessee received share capital and share premium of Rs. 14,63,00,000/- from various private limited companies. The AO treated this amount as unexplained income under Section 68 of the Income Tax Act, despite the assessee furnishing required documents to prove the identity and creditworthiness of the share subscribers and the genuineness of the transaction. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the AO's addition.

Issue 2: Establishing Identity, Creditworthiness, and Genuineness

The assessee argued that the AO's assessment order was cryptic and lacked discussion on the details and evidence provided. The CIT(A) also noted that the AO did not specify which details were furnished or not by the assessee. The CIT(A) conducted a fact-finding exercise and asked for additional details from the assessee, which were provided.

The assessee demonstrated that the share applicants were group companies, with directors related to the director of the assessee company. The share applicants had substantial net worth and sufficient funds for investment. The assessee provided extensive documentation, including company master data, PAN cards, ledger accounts, bank statements, affidavits, income tax returns, and audited accounts of the share applicants.

The CIT(A) observed that the investor companies had nominal assets, mainly cash and cash equivalents, and negligible income from business operations. However, the assessee argued that the share capital was raised for business expansion, which was evident from the significant increase in fixed assets and turnover during the relevant year. The funds were used for production, acquisition of fixed assets, and repayment of loans.

Conclusion:

The Tribunal found that the assessee had sufficiently proved the identity of the share subscribers, their creditworthiness, and the genuineness of the transaction. The share application money was received through proper banking channels, and the investments were reflected in the books and bank accounts of the shareholders. The Tribunal noted that neither the AO nor the CIT(A) provided evidence to suggest that the assessee's own funds were brought back as share application money. The CIT(A)'s contentions regarding the low income and rotation of money among group companies were insufficient to prove that unaccounted money was introduced in the assessee company.

The Tribunal referred to the jurisdictional Calcutta High Court's decision in PCIT vs. Anmol Stainless (P.) Ltd., which held that where the share applicants had substantial creditworthiness and investments were made by sister concerns or group companies with common directors, additions under Section 68 were rightly deleted.

Judgment:

The Tribunal concluded that the lower authorities were not justified in making or confirming the addition under Section 68. The appeal of the assessee was allowed, and the addition of Rs. 14,63,00,000/- was ordered to be deleted.