2023 (7) TMI 785 - AT - Income Tax

Addition u/s 68 - unexplained credit/receipt - bogus receipt towards share capital and share premium - genuineness and creditworthiness of the subscribing company in this case remained unproved - HELD THAT - Where the existence of the shareholder/subscriber is fully identifiable and unequivocally proved by direct evidences the creditworthiness of the subscriber is justifiable by formidable evidences and the genuineness of the transaction carried out through banking channel and return of allotment for subscription of shares have been filed before the competent authority the dispute raised by the Revenue appears inexplicable. The substantial net worth enjoyed both by the subscriber as well as the source of source also provides sound basis to infer the bona fides of the transaction and fortifies the plea of the assessee. The suspicion entertained on bona fides has not been carried out to any logical end. AO has attempted to implicate the assessee mainly on two grounds namely inspector report which shows that the assessee was not in existence at the address and secondly the summons issued u/s 131 has not been complied with by the Director of the Assessee. Both the points do not have much force. The inspector is stated to have visited on local address utilized on share basis. No verification at registered office situated at Kolkata was done. This apart it is illogical to fasten liability on the assessee merely because director of the subscriber sitting 1500 km away could not personally attend at the command of the AO at a short notice but instead produced his representative in an available time span of merely four days. Thus when seen in the light of cumulative facts the allegation made against the assessee by the Assessing Officer has been rightly found to be devoid of any strength by the CIT(A). We concur with the conclusion drawn by the CIT(A) on facts that charge of the AO towards lack of satisfactory explanation contemplated u/s 68 of the Act against the assessee is without any demonstrable basis. Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition of Rs. 2,24,99,910/- under Section 68 of the Income Tax Act, 1961.
2. Verification of identity, creditworthiness, and genuineness of transactions related to share capital and premium.

Summary:

Issue 1: Deletion of Addition under Section 68

The Revenue challenged the deletion of an addition of Rs. 2,24,99,910/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961. The AO had added this amount as unexplained credit, asserting that the company receiving the share premium, Pleasant Vyapaar Pvt. Ltd. (PVPL), was non-existent at the provided address and failed to prove the genuineness and creditworthiness of the transaction.

Issue 2: Verification of Identity, Creditworthiness, and Genuineness

The assessee had filed a return declaring a loss and during scrutiny assessment, the AO noted that the assessee-company had allotted preference shares at a premium, primarily to PVPL. Despite providing documentary evidence, the AO claimed the onus under Section 68 was not discharged, leading to the addition of Rs. 2,24,99,910/-. The CIT(A) reversed this addition, finding the identity and creditworthiness of shareholders and the genuineness of the transactions adequately proved. The CIT(A) noted that the funds were traceable to fixed deposits realized by Dhoomketu Pvt. Ltd.

Appellate Tribunal's Findings:

The Tribunal examined the facts and submissions, noting that the assessee had provided substantial evidence, including incorporation certificates, PAN details, IT returns, and audited accounts of PVPL and its source of funds, Dhoomketu Pvt. Ltd. The Tribunal found that the AO's reliance on the inspector's report and non-compliance with Section 131 summons was insufficient to discredit the evidence provided.

The Tribunal concurred with the CIT(A) that the identity, creditworthiness, and genuineness of the transaction were adequately demonstrated. The Tribunal emphasized that the funds were transferred through banking channels and the source of funds was traceable to legitimate financial activities, dismissing the Revenue's appeal.

Conclusion:

The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 2,24,99,910/- made under Section 68, affirming that the assessee had discharged its onus of proving the identity, creditworthiness, and genuineness of the transactions. The appeal by the Revenue was dismissed.