2023 (9) TMI 538 - AT - Income Tax

Addition on account of share capital/ share premium being unexplained u/s 68 - identity, creditworthiness of investors and genuineness of the transactions - HELD THAT - In the instant case before us also, the assessee has furnished all the evidences proving identity and creditworthiness of the investors and genuineness of the transactions but AO has not commented on these evidences filed by the assessee. Besides all the investors have also furnished complete details/evidences before the AO which proved the identity, creditworthiness of investors and genuineness of the transactions. Thus we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition by allowing the appeal of the assessee.

Summary

Issues:
The only issue raised is against the confirmation of addition of Rs. 2,24,28,434/- by the Ld. CIT(A) as made by the AO on account of share capital/share premium being unexplained u/s 68 of the Act.

Details of Judgment:

Issue 1: Addition of Share Capital/Share Premium u/s 68 of the Act

- The assessee filed return of income declaring a total income of Rs. 3,235/- and issued equity shares raising share capital/share premium of Rs. 2,24,28,434/.
- The AO observed lack of compliance with summons u/s 131 by directors of share subscribers, leading to addition of unexplained investments.
- The Ld. CIT(A) upheld the addition due to failure in proving identity, creditworthiness, and genuineness of transactions.
- The assessee argued that all evidences were furnished and share subscribers confirmed investments, questioning the basis of addition.
- The Tribunal found that despite non-compliance with summons u/s 131, both the assessee and share subscribers provided necessary documents proving identity and creditworthiness.
- Citing precedents, the Tribunal held that non-compliance with summons alone cannot justify addition without pointing out deficiencies in documents.
- Relying on decisions emphasizing examination of all evidence, the Tribunal set aside the Ld. CIT(A)'s order and directed deletion of the addition.
- The appeal of the assessee was allowed, and the order was pronounced on 1st August, 2023.

This judgment highlights the importance of substantiating share capital/share premium transactions under section 68 of the Act with proper documentation and evidence to establish identity, creditworthiness, and genuineness, even if there is non-compliance with summons, to avoid unjustified additions.