2024 (2) TMI 521 - AT - Income Tax

Undisclosed cash credit u/s 68 - non-appearance of directors - As per DR assessee has failed to prove the genuineness of transaction and creditworthiness of the share applicants - CIT(A) deleted the addition - HELD THAT - All the share applicants are (i) income tax assessees, (ii) they are filing their income tax returns, (iii) share application form and allotment letter is available on record, (iv) share application money was made by account payee cheques, (v) details of the bank accounts belonging to share applicants and their bank statements, (vi) in none of the transactions there are any deposit of cash before issuing cheques to the assessee, (vii) all the share applicants are having substantial creditworthiness represented by their capital and reserves. Hon'ble Calcutta High Court in the case of PCIT Vs. Naina Distributors Pvt. Ltd 2023 (6) TMI 1362 - CALCUTTA HIGH COURT has decided the issue in favour of the assessee by holding that mere non-production of director cannot be the ground for making any addition in the hands of assessee u/s 68 - Thus addition made by the Ld. AO towards share capital including share premium is directed to be deleted. Thus, grounds taken by the revenue in this regard are dismissed.

Issues Involved:

1. Addition on undisclosed cash credit under Section 68 of the Income-tax Act.
2. Failure to prove genuineness of transaction and creditworthiness of share applicants.
3. Overlooking principles laid down by the Supreme Court in Pr.CIT (Central)-l, Delhi Vs. NRA Iron & Steel Pvt. Ltd.
4. Deletion of addition made under Section 68 by CIT(A).
5. Justification of share application money and share premium.
6. Non-compliance with summons issued under Section 131.
7. Burden of proof and primary onus under Section 68.

Summary:

1. Addition on undisclosed cash credit under Section 68:
The revenue appealed against the order of CIT(A) which granted relief to the assessee by deleting the addition of Rs. 2,76,50,000/- made under Section 68 of the Income-tax Act. The revenue argued that the assessee failed to prove the genuineness of the transaction and the creditworthiness of the share applicants.

2. Failure to prove genuineness of transaction and creditworthiness:
The revenue contended that the assessee did not satisfy the criteria laid down by the Supreme Court in Pr.CIT (Central)-l, Delhi Vs. NRA Iron & Steel Pvt. Ltd., which mandates proving the receipt of share capital/premium to the satisfaction of the Assessing Officer (AO). The AO had made additions due to the non-compliance by the directors of the assessee company and share applicants in appearing before the AO.

3. Overlooking Supreme Court principles:
The revenue argued that the CIT(A) overlooked the principles from the case of Pr.CIT (Central)-l, Delhi Vs. NRA Iron & Steel Pvt. Ltd., which emphasize the AO's duty to investigate the creditworthiness of the creditors and the genuineness of the transactions. The AO could not verify the same due to the non-response from the companies to whom shares were allotted.

4. Deletion of addition by CIT(A):
The CIT(A) deleted the addition after considering the documentary evidence provided by the assessee, which included PAN, registered office addresses, CIN, and bank statements of the share applicants. The CIT(A) found that the identity, creditworthiness, and genuineness of the transactions were established, and the AO's addition was based on conjectures and surmises.

5. Justification of share application money and share premium:
The CIT(A) held that the share application money and share premium were justified as the share applicants had substantial creditworthiness, and the transactions were made through proper banking channels. The CIT(A) relied on several judicial precedents, including the decision of the Hon'ble Supreme Court in CIT vs. Orissa Corpn. (P) Ltd., which held that non-appearance of the share applicants is not a basis for invoking Section 68.

6. Non-compliance with summons under Section 131:
The revenue's argument that the non-compliance with summons under Section 131 justified the addition was rejected by the CIT(A). The CIT(A) noted that the AO did not pursue the matter further despite having the necessary documentary evidence.

7. Burden of proof and primary onus under Section 68:
The CIT(A) concluded that the assessee had discharged its primary onus under Section 68 by providing sufficient documentary evidence. The burden then shifted to the AO to disprove the material placed before him, which he failed to do.

Conclusion:
The Tribunal upheld the order of the CIT(A), finding that the assessee had provided adequate evidence to establish the identity, creditworthiness, and genuineness of the share applicants. The AO's addition under Section 68 was deemed unsustainable, and the revenue's appeal was dismissed. The decision was supported by various judicial precedents, emphasizing that mere non-appearance of share applicants cannot justify additions under Section 68 when sufficient documentary evidence is provided.

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