2024 (6) TMI 1142 - AT - Income Tax

Addition u/s 68 - unexplained share capital/share premium - no compliance to the summons issued u/s 131 - AO upon examination of the details filed by the assessee observed that during the year the assessee has issued equity shares at a premium and there is no business activity or book value / EPS and therefore there is no justification for issue of shares at premium - HELD THAT - AO has wrongly stated in the assessment order that there was no compliance to the summons issued u/s 131 of the Act. We also note that both the investors have good earnings and net worth and even the source of source was proved by the investing companies. Therefore the authorities below have not done any verification or conducted any enquiry into the evidences filed by the assessee and merely harped on the non compliance of summons issued u/s 131 of the Act. Even in case we accept the observation of the AO as to non compliance of the summons u/s 131 of the Act by the assessee and also non productions of the directors of the investing companies even then the AO cannot make addition on the sole basis of non compliance. The case of the assessee is also squarely covered by the decisions of Crystal Networks Pvt. Ltd. 2010 (7) TMI 841 - KOLKATA HIGH COURT wherein it has held that where all the evidences were filed by the assessee proving the identity and creditworthiness of the loan transactions , the fact that summon issued were returned unserved or no body complied with them is of little significance to prove the genuineness of the transactions and identity and creditworthiness of the creditors. Similar ratio has been laid down in the case of CIT Vs Orchid Industries (P) Ltd 2017 (7) TMI 613 - BOMBAY HIGH COURT by holding that provisions of section 68 cannot be invoked for the reasons that the person has not appeared before the AO where the assessee had produced on records documents to establish genuineness of the party such as PAN, financial and bank statements showing share application money. Decided in favour of assessee.

Summary

Issues:
1. Jurisdiction of the Assessing Officer under section 143(2) of the Act.
2. Addition of unexplained share capital/share premium under section 68 of the Act.

Issue 1: Jurisdiction of the Assessing Officer:
The appeal raised a legal issue against the notice issued under section 143(2) by an Assessing Officer who lacked territorial jurisdiction at the time of issuing the notice. The appellant did not pursue this ground during the hearing, leading to its dismissal.

Issue 2: Addition of Unexplained Share Capital/Share Premium:
The main issue revolved around the addition of Rs. 1,66,16,400/- as unexplained share capital/share premium under section 68 of the Act. The appellant had issued equity shares at a premium, which the Assessing Officer deemed unjustified due to the lack of business activity or book value. The AO conducted inquiries, issued notices to investing companies, and summoned directors for verification. However, the directors failed to appear, prompting the AO to treat the share capital as unexplained cash credit. The Commissioner upheld this decision, emphasizing the lack of compliance and the fictitious nature of the companies involved.

Upon review, the Appellate Tribunal found that the appellant had provided evidence, including audited accounts and reports, to establish the identity and creditworthiness of the investing companies. Despite non-compliance with summons under section 131, the Tribunal held that non-compliance alone could not justify the addition. Citing legal precedents, including the Supreme Court and High Court decisions, the Tribunal emphasized the importance of considering all evidence and facts before making additions under section 68. The Tribunal concluded that the AO had not properly verified the evidence submitted by the appellant and directed the deletion of the addition.

In light of the detailed analysis and legal precedents, the Tribunal allowed the appeal, setting aside the Commissioner's order and directing the Assessing Officer to delete the addition of unexplained share capital/share premium.

This comprehensive summary highlights the legal issues, the arguments presented, and the Tribunal's decision based on thorough analysis and relevant case law.