2023 (4) TMI 692 - AT - Income Tax

Addition u/s 68 - Unexplained credit - Bogus share capital and share premium - onus to prove the identity and creditworthiness of the share subscribing companies and the genuineness of the transactions - HELD THAT - We notice that the alleged sum was found credited in the books of accounts maintained by the assessee. Second part of the Section is that the assessee offers no explanation about the nature and source thereof but the same is not applicable in the instant case since the assessee has offered the explanation about the nature and source by filing complete documentary evidences to prove the identity and creditworthiness of the share subscribers and the genuineness of the transaction. Now, the third part is that if the explanation offered by the assessee is not satisfactory in the opinion of ld. AO now, for ld. AO has to express his opinion of having not satisfied and the same needs to be supported by specific observation rebutting the explanation offered by the assessee. But the same is completely absent in the instant case. Assessee has provided sufficient explanation with all documentary evidences but ld. AO made no efforts to examine those details and found some fault/discrepancy in the same. AO ought to have appreciated that the share subscribers are private limited companies and were having sufficient share capital, reserve and surplus in their regular books of accounts and out of such available funds the alleged share subscribers have invested in the assessee company. In our considered view, ld. AO failed to cross this hurdle as provided under the provisions of Section 68 of the Act before making the addition. We under the given facts and circumstances of the case most importantly that the year under appeal is AY 2008-09 and the proviso to Section 68 of the Act specifically brought in for examining the share application money/share premium received in the case of the companies has been brought into the Income Tax Act w.e.f. 01.04.2013, are of the considered view that prior to this amendment if the assessee had offered sufficient explanation about the nature and source of the alleged sum credited in the books which in this case is share capital and share premium and has discharged its onus by providing complete documentary evidences to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction and ld. AO failed to record any discrepancy in such details, no addition u/s 68 called for. We thus, set aside the finding of ld. CIT(A), delete the addition made u/s 68 of the Act and allow the effective grounds of appeal in ground raised by the assessee.

Issues Involved:
1. Justification of the Commissioner of Income Tax (Appeal) in confirming the order of the Assessing Officer.
2. Consideration of share capital and share premium as unexplained cash credit.
3. Basis of addition by the Assessing Officer.
4. Alleged bias and guesswork in the addition made by the Assessing Officer.
5. Assessment without appreciating documents and explanation.
6. Justification of addition on account of share capital previously verified.
7. Validity of the additions made by the Assessing Officer and upheld by the Commissioner of Income Tax (Appeal).

Summary:

1. Justification of the Commissioner of Income Tax (Appeal) in confirming the order of the Assessing Officer:
The assessee challenged the ex-parte order of the CIT(A) confirming the addition made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, arguing that the CIT(A) did not consider the documents and explanations provided.

2. Consideration of share capital and share premium as unexplained cash credit:
The AO considered the share capital and share premium of Rs. 10,60,50,000/- received by the assessee as unexplained cash credit under Section 68 of the Act, despite the assessee providing documentary evidence to prove the identity, creditworthiness, and genuineness of the transactions.

3. Basis of addition by the Assessing Officer:
The assessee contended that the addition was based on mere suspicion without any material evidence. The Tribunal noted that the AO failed to point out any specific discrepancies in the documents provided by the assessee and did not make any efforts to verify the details.

4. Alleged bias and guesswork in the addition made by the Assessing Officer:
The assessee argued that the AO made the addition with a predetermined and biased mindset. The Tribunal observed that the AO did not support his opinion with specific observations rebutting the explanation offered by the assessee.

5. Assessment without appreciating documents and explanation:
The Tribunal found that the AO did not appreciate the documents and explanations produced by the assessee, which included details of share subscribers, their financial statements, and their tax assessments.

6. Justification of addition on account of share capital previously verified:
The assessee argued that the share capital was verified and certified by the AO in earlier years. The Tribunal noted that the AO did not make any efforts to examine the details provided by the assessee or find any fault in them.

7. Validity of the additions made by the Assessing Officer and upheld by the Commissioner of Income Tax (Appeal):
The Tribunal referred to various judicial precedents and observed that the AO failed to conduct an independent inquiry to verify the genuineness of the transactions. The Tribunal concluded that the assessee had discharged its onus to prove the identity, creditworthiness, and genuineness of the share subscribers, and the addition under Section 68 was not justified.

Conclusion:
The Tribunal set aside the findings of the CIT(A) and deleted the addition of Rs. 10,60,50,000/- made under Section 68 of the Act, allowing the appeal filed by the assessee.

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