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2023 (4) TMI 1352 - AT - Income TaxUnexplained share Capital and Share Premium - unexplained unsecured loan - onus to prove - HELD THAT - We note that disputed unsecured loan and most of the loan has been repaid in subsequent year. Therefore, such loan should be treated genuine. Where department had accepted repayment of loan in subsequent year, no addition was to be made in current year on account of cash credit, as held in the case of CIT v. Ayachi Chandrashekhar Narsangji 2013 (12) TMI 372 - GUJARAT HIGH COURT AO made the addition was because some of the creditors did not turn up before him - Hon'ble Apex Court in the case of CIT v. Orissa Corpn. (P.) Ltd. 1986 (3) TMI 3 - SUPREME COURT and Rohini Builders 2001 (3) TMI 9 - GUJARAT HIGH COURT has held that onus of the assessee (in whose books of account credit appears) stands fully discharged if the identity of the creditor is established and actual receipt of money from such creditor is proved. In case, the AO is dissatisfied about the source of cash deposited in the bank accounts of the creditors, the proper course would be to assess such credit in the hands of the creditor (after making due enquiries from such creditor). When a question as to the creditworthiness of a creditor is to be adjudicated and if the creditor is an Income-tax assessee, it is now well settled by the decision of Dataware (P.) Ltd 2011 (9) TMI 175 - CALCUTTA HIGH COURT that the creditworthiness of the creditor cannot be disputed by the AO of the assessee but the AO of the creditor. We also noted that assessee has submitted essential evidences before assessing officer, such as PAN number, address, income tax returns and audited financial statements of creditors and all transactions were through banking channel. We have also gone through the detailed findings of ld CIT(A) and noted that conclusion reached by ld CIT(A) in deleting the addition is acceptable. Unexplained share capital - In the assessee s case there is no material that the assessee company had collected on money which could be routed back in the investment. The assessee had discharged primary onus of providing the identity, genuineness and creditworthiness of the said shareholders. The assessee has also proved the source of the source. Our view is also fortified by the judgment of the Hon'ble High Court of Gujarat in the case of CIT v. Ranchhod Jivabhai Nakhava 2012 (5) TMI 186 - GUJARAT HIGH COURT . Thus as all the share applicants are ( i ) income tax assessee's, ( ii ) they are filing their return of income, ( iii ) the share application form and allotment letter is available on record, ( iv ) the share application money was made by account payee cheques, ( v ) the details of the bank accounts belonging to the share applicants and their bank statements, ( vi ) in none of the transactions the AO found deposit in cash before issuing cheques to the assessee company, ( vii ) the applicants are having substantial creditworthiness which is represented by a capital and reserve as noted above. ( viii ). Source of the Source has been proved by the assessee. Decided in favour of assessee.
Issues Involved:
1. Deletion of addition on account of unexplained share capital and share premium. 2. Deletion of addition on account of unexplained unsecured loan. 3. Deletion of total additions on account of unexplained cash credit under Section 68 of the Income-tax Act. 4. Failure to appreciate the facts reported by the Assessing Officer (AO) in his remand report. 5. Whether the CIT(A) should have upheld the AO's order. 6. Prayer for setting aside the CIT(A)'s order and restoring the AO's order. Detailed Analysis: 1. Deletion of Addition on Account of Unexplained Share Capital and Share Premium: The AO added Rs. 68,14,950/- as unexplained share capital and share premium, citing the assessee's failure to prove the genuineness of transactions and the creditworthiness of investors. The CIT(A) deleted this addition, noting that: - The identity of all creditors was established as they appeared before the AO during remand proceedings. - Creditors filed their income tax returns, and their PANs were mentioned in the assessment order. - Copies of bank accounts reflecting the transactions were furnished. - Confirmation and contra confirmation of all creditors were filed. - The creditors were from the promoter families and had sufficient funds to make the investments. - The CIT(A) relied on the jurisdictional High Court's decision in Ranchhod Jiva Bhai Nakhawa and the Supreme Court's decision in CIT v. Lovely Exports Pvt. Ltd. 2. Deletion of Addition on Account of Unexplained Unsecured Loan: The AO added Rs. 8,10,13,188/- as unexplained unsecured loans, citing the same reasons as above. The CIT(A) deleted this addition, observing that: - The identity, creditworthiness, and genuineness of transactions were established through various documents, including PAN, income tax returns, bank statements, and confirmations. - The creditors appeared before the AO and confirmed giving the unsecured loans. - The CIT(A) noted that the same creditors were involved in the previous assessment year, and the addition was deleted by the CIT(A) and upheld by the ITAT. - The CIT(A) relied on the decision in CIT v. Namastey Chemicals Pvt. Ltd. and Earth Metal Electrical Pvt. Ltd. 3. Deletion of Total Additions on Account of Unexplained Cash Credit Under Section 68: The AO added Rs. 8,78,28,138/- under Section 68, treating the share capital, share premium, and unsecured loans as unexplained cash credits. The CIT(A) deleted this addition, emphasizing: - The creditors' identity, creditworthiness, and genuineness of transactions were proved. - The creditors provided necessary supporting documents and appeared before the AO. - The CIT(A) followed the binding decisions of the Supreme Court, Gujarat High Court, and jurisdictional ITAT. 4. Failure to Appreciate the Facts Reported by the AO in His Remand Report: The AO reported that the creditors were merely entry providers with no genuine business activities. The CIT(A) countered this by highlighting: - The creditors' compliance with income tax filings and production of relevant documents. - The creditors' appearance before the AO and confirmation of transactions. - The CIT(A) noted that the AO could have verified the creditors' details with their respective AOs. 5. Whether the CIT(A) Should Have Upheld the AO's Order: The CIT(A) did not uphold the AO's order, finding that the addition under Section 68 was unsustainable based on the evidence provided by the assessee and the creditors. The CIT(A) relied on judicial precedents supporting the assessee's position. 6. Prayer for Setting Aside the CIT(A)'s Order and Restoring the AO's Order: The Revenue prayed for setting aside the CIT(A)'s order and restoring the AO's order. However, the ITAT upheld the CIT(A)'s decision, noting: - The assessee discharged its burden of proof regarding the identity, creditworthiness, and genuineness of transactions. - The creditors' financial statements, bank transactions, and income tax returns supported the assessee's claims. - Judicial precedents favored the assessee, emphasizing that the AO should verify the creditors' details with their respective AOs before making additions under Section 68. Conclusion: The ITAT dismissed the Revenue's appeal, confirming the CIT(A)'s deletion of the additions made by the AO. The ITAT emphasized that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions, and the AO's approach was not justified.
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