2024 (8) TMI 1178 - AT - Income Tax

Unexplained share capital/share premium u/s 68 - Assessee during the year has issued equity shares to two group companies to note that these group companies have common directors - AO noted that these companies were not having any business and were having only loan transactions and non-current investments HELD THAT - Pertinent to state that the assessee has filed all the evidences / explanation as called for by the AO during the course of assessment proceedings comprising details as to names, addresses, PANs, audited accounts, bank statements, confirmation letters etc. to prove this transactions. Besides the AO in order to verify these transactions has also issued notice u/s 133(6) of the Act to both the subscribers which were also duly complied with and the share subscribing companies have furnished all the details as called for by the AO. Besides the summon u/s 131 were issued to the director of the assessee company who happens to be director on the subscribing companies and his statement was recorded by the AO. The said director has admitted to have issued equity shares from the assessee company to two group companies and it was also stated that the subscribing companies having substantial resources available to invest in the assessee company. It was also stated that the subscription proceeds were utilized for the purchase of flat. The statement of the said director is extracted. We note that despite all these evidences being furnished as stated above, the AO has only doubted the business of the assessee as well as the investing companies without disputing the evidences filed by the assessee or pointing out any defect/deficiency therein. CIT(A) simply affirmed the order by relying on the preponderance of human probability thereby ignoring the facts on record. We note that in the present case the assessee or its group companies are not shell companies engaged in providing accommodation entries and therefore we find that theory of the AO that the assessee s own money routed through these investing companies appears to be incorrect. As the assessee has filed all the evidences qua the investing companies and these share subscribers have also complied with the notices issued u/s 133(6) of the Act as well as summon issued u/s 131 - The assessee has proved identity and creditworthiness and genuineness of the transactions by furnishing the evidences and the CIT(A) has not controverted these documents by giving substantive findings. Therefore, we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition. Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 1,39,99,920/- on account of unexplained share capital/share premium under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of Rs. 1,39,99,920/- on account of unexplained share capital/share premium under Section 68 of the Income Tax Act:

The assessee filed a return of income declaring total income at Nil. During the scrutiny, the Assessing Officer (AO) observed that the directors of the assessee company and the allottee companies were common. The AO recorded the statement of the common director, who confirmed that equity shares were allotted to two group companies at a face value of Rs. 10/- each with a premium of Rs. 80/- per share. The subscription amounts were received through banking channels and were utilized for purchasing a flat. The AO noted that the subscribing companies had only loan transactions and non-current investments, leading to doubts about the genuineness of the share subscriptions. Consequently, the AO added Rs. 1,39,99,920/- to the income of the assessee under Section 68 of the Act.

In the appellate proceedings, the Commissioner of Income Tax (Appeals) [CIT(A)] affirmed the AO's order by relying on Supreme Court decisions, which allow tax authorities to consider surrounding circumstances and human probability to determine the reality of transactions. The CIT(A) dismissed the appeal of the assessee.

The assessee's Authorized Representative (A.R) argued that all necessary details and evidence were provided to the AO, including names, addresses, PANs, audited accounts, bank statements, and confirmation letters. The AO's doubts were based on general observations without disputing the evidence provided. The A.R contended that the transactions were genuine and distinguished the case from the Supreme Court decisions relied upon by the CIT(A), arguing that those cases involved scenarios where evidence was not furnished or circumstantial evidence was needed.

The Departmental Representative (D.R) argued that merely filing documents and receiving money through banking channels does not prove the identity, creditworthiness, and genuineness required under Section 68 of the Act. The D.R relied on a Calcutta High Court decision, which held that mere filing of documents does not establish these ingredients.

The Tribunal noted that the assessee had provided all necessary evidence and that the AO's doubts were not substantiated by any defects or deficiencies in the evidence. The Tribunal found that the CIT(A) had relied on human probability without considering the facts on record. The Tribunal distinguished the case from the Calcutta High Court decision cited by the D.R, noting differences in the facts, such as compliance with summons and the nature of share premium.

The Tribunal concluded that the assessee had proved the identity, creditworthiness, and genuineness of the transactions. The Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition.

Conclusion:

The appeal of the assessee was allowed, and the addition of Rs. 1,39,99,920/- was directed to be deleted. The order was pronounced in the open court on 22nd August 2024.