2023 (3) TMI 346 - AT - Income Tax

Addition u/s 68 - creditworthiness of the nine share subscribing companies proved or not? - directors of the share subscribing companies failed to appear to the notices issued u/s. 133(6) - HELD THAT - Since the assessee has sufficiently explained the identity and creditworthiness of the share subscriber companies and the genuineness of the transaction of applying for the equity shares of the assessee company and since nothing contrary to the evidence filed by the assessee has been placed on record by the Revenue, except the reason that the directors of the share subscribing companies failed to appear to the notices issued u/s. 133(6) we find no reason to interfere with the meritorious finding of the CIT(A). We accordingly, dismiss the grounds raised by the revenue in this respect. Appeal of the revenue is dismissed.

Summary

Issues Involved:

1. Deletion of addition of Rs. 1,60,00,000/- on account of share capital and premium due to lack of identity, genuineness, and creditworthiness of transactions.
2. Non-appearance of directors of the share allottee companies during assessment proceedings.
3. Application of principles laid down by the Supreme Court in the case of Pr. CIT(Central) -1, Kolkata vs NRA Iron & Steel Pvt. Ltd. (412 ITR 161).
4. Verification of identity, creditworthiness, and genuineness of transactions by the Assessing Officer.
5. Compliance with Section 68 of the Income-tax Act, 1961.
6. Violation of Rule 46A of the I.T. Rules due to absence of remand for fresh verification.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 1,60,00,000/-:
The Revenue challenged the deletion of the addition made by the Assessing Officer (AO) on account of share capital and premium. The AO had added Rs. 1,60,00,000/- as unexplained cash credit under Section 68 of the Income-tax Act, 1961, citing the absence of identity, genuineness, and creditworthiness of the transactions. However, the CIT(A) deleted the addition after thoroughly examining the facts and evidence provided by the assessee, including confirmations from the share subscriber companies, their financial statements, and bank statements. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had discharged its primary onus under Section 68 by providing sufficient evidence of the identity, creditworthiness, and genuineness of the transactions.

2. Non-appearance of Directors:
The AO noted that no directors of the share allottee companies appeared during the assessment proceedings, which was used as a basis for questioning the transactions' genuineness. The Tribunal, however, held that non-appearance of directors is not fatal to the assessee's case if other substantial evidence is provided. The assessee had submitted all necessary documents, and the non-appearance of directors did not negate the validity of the transactions.

3. Application of Supreme Court Principles (NRA Iron & Steel Pvt. Ltd.):
The AO relied on the Supreme Court's decision in NRA Iron & Steel Pvt. Ltd., which mandates that the assessee must prove the receipt of share capital/premium to the AO's satisfaction. The Tribunal distinguished the present case from NRA Iron & Steel Pvt. Ltd., noting that in the latter, extensive enquiries revealed non-existent investors, whereas in the present case, the share subscribers were genuine entities with valid financial records.

4. Verification by Assessing Officer:
The Tribunal observed that the AO failed to properly verify the identity, creditworthiness, and genuineness of the transactions despite having all necessary documents. The AO did not pursue further investigation or disprove the material placed before him, which led to the conclusion that the addition was based on conjectures and surmises.

5. Compliance with Section 68:
The Tribunal affirmed that the assessee had met the requirements of Section 68 by providing comprehensive evidence, including PAN details, income tax returns, bank statements, and audited financial statements of the share subscriber companies. The burden of proof had shifted to the AO, who did not provide any contrary evidence.

6. Violation of Rule 46A:
The Revenue contended that the CIT(A) should have remanded the matter to the AO for fresh verification, alleging a violation of Rule 46A of the I.T. Rules. The Tribunal found no merit in this argument, as the CIT(A) had based his decision on the substantial evidence provided during the assessment proceedings, and there was no need for a remand.

Conclusion:
The Tribunal concluded that the assessee had sufficiently explained the identity and creditworthiness of the share subscriber companies and the genuineness of the transaction. The AO's failure to disprove the evidence or conduct further investigation meant that the addition could not be sustained. The Tribunal upheld the CIT(A)'s decision to delete the addition and dismissed the Revenue's appeal.

Order:
The appeal of the revenue is dismissed.