2018 (11) TMI 1964 - AT - Income Tax

Addition u/s 68 - no plausible reply by assessee to produce the people from whom the share application money has been received and on the strength of the Inspector s report AO came to the conclusion that the assessee grossly failed to identify the share applicants - onus to prove - HELD THAT - We find that in response to notice served upon them u/s. 133(6) of the Act all the share applicants have furnished their documents in the form of copy of ledger account bank statements and copies of income tax returns. It should be kept in mind that these documents were furnished by the share applicants directly to the Assessing Officer in response to his notice. Therefore it cannot be said that the said share applicants do not exist on the given addresses as reported by the Inspector. A perusal of the respective bank statements clearly shows that all the transactions are duly reflected in the bank statements of the subscriber company. It is not the case of the Assessing Officer nor it is the case of the first appellate authority that the appellant company has purchased cheques from the subscriber company in lieu of cash. All the transactions have been done through banking channel. Once the appellant company filed complete details before the AO then the initial onus upon the assessee company has been discharged to prove the identity of the investor. The appellant company has provided the balance sheet of the investor companies alongwith their company profiles and details with the Registrar of Companies. The subscriber companies themselves have provided the bank statements and their respective PAN details. It is not the case of the Revenue that the subscriber companies are name lenders or entry providers. Their details are available on public domain on the website of the Registrar of Companies. The Hon ble Supreme Court in the case of CIT v. Lovely Exports (P.) Ltd. 2008 (1) TMI 575 - SC ORDER has laid down the ratio that the assessee has to be merely identified as the shareholder and the initial onus u/s. 68 of the Act stands discharged on mere identification. As decided in the case of CIT v. Sophia Finance Ltd. 1993 (8) TMI 62 - DELHI HIGH COURT the ratio that if the shareholders are identified and it is established that they have invested in the purchase of shares then the amount received by the company would be regarded as capital received. The assessee has no further onus. Exhibits 123 to 139 of the paper book reveal the proportion of investment made by the share applicant companies in the share capital of the appellant company. The percentage of their investment ranges from 5% to 40% which means that the share applicant company portfolios include investment in other companies also. There is nothing on record to suggest that the other investments made by the share applicant companies have been treated as bogus in the hands of other companies. In our considered opinion the applicant company has successfully discharged the initial onus cast upon it by the provisions of section 68 of the Act and therefore no addition is called for u/s. 68 of the Act as unexplained cash credit. Decided in favour of assessee.

Summary

Issues Involved:
1. Sustaining the addition of Rs. 31.56 crores made by the Assessing Officer under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Sustaining the Addition of Rs. 31.56 Crores Made by the Assessing Officer Under Section 68 of the Income Tax Act:

The assessee challenged the correctness of the order of the CIT(A)-3, Delhi, which sustained the addition of Rs. 31.56 crores made by the Assessing Officer under Section 68 of the Income Tax Act. The core grievance was that the CIT(A) erred in sustaining this addition.

The facts of the case reveal that the assessee filed its return of income declaring a total income of Rs. 1.62 crores. During scrutiny assessment, the Assessing Officer noticed an increase in the share capital from Rs. 11.94 crores to Rs. 31.56 crores and sought to substantiate the identity, creditworthiness, and genuineness of the share capital received. The assessee provided a list of share applicants with full names and addresses, and the Assessing Officer issued notices under Section 133(6) of the Act to verify the genuineness of the share application money received. Replies along with ledger accounts, bank statements, and copies of income tax returns were received from the share applicants.

The Assessing Officer analyzed the details and found discrepancies, leading to the deputation of an Income Tax Inspector for further enquiry. The Inspector reported that the subscriber companies' addresses were fake. Consequently, the Assessing Officer concluded that the assessee failed to identify the share applicants and made an addition of Rs. 31.56 crores under Section 68 of the Act. The CIT(A) upheld this addition despite issuing summons under Section 131 of the Act to the share applicants, which were duly served.

The tribunal considered the provisions of Section 68, which place the initial onus on the assessee to establish the identity of the creditor, genuineness of the transaction, and capacity of the lender. The tribunal noted that the assessee provided all necessary documents, including ledger accounts, bank statements, and income tax returns, directly to the Assessing Officer. These documents indicated that the transactions were genuine and conducted through banking channels.

The tribunal referenced the case of CIT v. Kamadhenu Steel & Alloys Ltd., where the Hon'ble Delhi High Court emphasized that the Revenue must conduct thorough inquiries and cannot solely rely on the non-availability of creditors at given addresses to invoke Section 68. The tribunal also cited the Hon'ble Supreme Court's decision in CIT v. Lovely Exports (P.) Ltd., which held that mere identification of the shareholder discharges the initial onus under Section 68.

The tribunal found that the Assessing Officer did not provide reasonable and sufficient time for the assessee to produce the directors of the subscriber companies. Moreover, the CIT(A) did not enforce the attendance of the directors despite having the powers of a civil court. The tribunal distinguished the facts of the case from other cases relied upon by the Revenue, noting that the addresses of the subscriber companies were proper, and they responded to the notices with the required documents.

In conclusion, the tribunal held that the assessee had successfully discharged the initial onus under Section 68 of the Act. Therefore, the addition of Rs. 31.56 crores as unexplained cash credit was not warranted. The tribunal directed the Assessing Officer to delete the addition, and the appeal of the assessee was allowed.