2024 (3) TMI 103 - AT - Income Tax

Unexplained cash credit u/s 68 - bogus share capital/share premium - book value of share was 212/- per share whereas the premium at which the equity shares were issued was approximately five times higher - as per DR mere fact that subscribers have sufficient funds or net worth would not automatically proved that they have creditworthiness to invest the money and transactions are genuine - HELD THAT - We find that during the year the assessee has raised money from five subscribers by issuing equity shares of face value of 10/- each and at a premium of Rs. 990/-. The net worth or the book value as per share as per books of account of the assessee was 212/- per share whereas the assessee was issued shares at a premium of Rs. 990/-. We also note that the assessee company was incorporated in 2007 and over a period of four years the value of shares was increased by 20 times and it is only based on this growth trajectory and potential of the assessee, equity shares have been prised at Rs. 1,000/- each inclusive of premium of Rs.990/-. Provisions of Section 56(2)(viib) of the Act are effective from AY 2013-14 and are not applicable to the year under consideration. We find that the assessee has filed all the evidences as stated above consisting of copies of ITRs, audited accounts, certificates of incorporation, Memorandum and Articles, Annual Returns filed with ROC, bank statements, replies to summons issued u/s 131, source of source certificates, assessment orders u/s 143(3) and intimation u/s 143(1) of the Act in all five investors and the authorities below have failed to pin point any defect of deficiency. Thus we are inclined to hold that the addition has wrongly been confirmed by the CIT(A) and we are not in a position to sustain the same. Consequently the order of CIT(A) has set aside and AO is directed to delete the addition. Decided in favour of assessee.

Summary

Issues Involved:
The issues involved in this judgment are (1) Appeal against order of Ld. Commissioner of Income Tax (Appeal)-3, Kolkata for AY 2011-12, (2) Confirmation of addition of Rs. 2,80,00,000/- as unexplained cash credit u/s 68 of the Act in respect of share capital/share premium.

Issue 1:
The first issue raised in ground no. 1 was deemed general in nature and required no adjudication.

Issue 2:
The second issue pertained to the confirmation of addition of Rs. 2,80,00,000/- by the Ld. CIT(A) as unexplained cash credit u/s 68 of the Act in relation to share capital/share premium. The assessee had raised equity shares at a premium of Rs. 990/- each, which the AO questioned as potentially being accommodation entries. The AO called for details and justification from the assessee, who provided various documents including balance sheets, bank statements, and evidences of share subscribers' financials. Despite the explanations given by the assessee, the AO added the amount as unexplained cash credit to the assessee's income.

The Ld. CIT(A) upheld the AO's decision, citing a similar case and emphasizing that the assessee failed to justify the share premium amount. The Ld. A.R argued that the premium was based on the company's growth and potential, and referenced the net worth of the subscribers to support the genuineness of the transactions. The Ld. D.R supported the lower authorities' decisions, stating that the subscribers' funds did not automatically establish creditworthiness. Upon review, the Tribunal found that the share pricing was justified based on the company's growth trajectory over four years. The net worth of the subscribers far exceeded their investments in the assessee company, and all necessary documents were provided to substantiate the transactions. Consequently, the Tribunal set aside the Ld. CIT(A)'s decision and directed the AO to delete the addition, allowing the assessee's appeal.

This judgment highlights the importance of substantiating transactions involving share capital/share premium and the significance of providing relevant documentation to support the genuineness of such transactions.