2025 (1) TMI 522 - AT - Income Tax

Addition u/s 68 - unexplained credits - Assessee has routed its unaccounted money in the guise of share application and share premium - CIT(A) deleted the addition - D.R. submitted that the assessee has not been able to explain the source of source of share capital contribution received by the assessee company during the year under consideration - HELD THAT - We hold that assessee has explained the identity, creditworthiness and genuineness of transaction of share capital contribution in terms of provisions of section 68 of the Act. CIT(A) has correctly deleted the addition in the case of assessee under section 68 of the Act and does not call for any interference. Share capital contribution is not unexplained credit considering facts and evidence on record. In view of above, we find no merits in the appeal filed by the Revenue. Accordingly, the grounds of appeal raised by the Revenue are dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in this judgment include:

• Whether the CIT(A) erred in ignoring the outcome of independent inquiries conducted by the Assessing Officer regarding the creditworthiness of the companies investing in the assessee company.
• Whether the CIT(A) erred in ignoring the fact that the company, M/s. Lupin Commodities Pvt. Ltd., could not be located at the given address, and the assessee failed to provide an updated address.
• Whether the CIT(A) erred in relying on a precedent that the source of the source cannot be asked, despite the Assessing Officer's independent inquiries.
• Whether the CIT(A) should have considered the lack of creditworthiness of the investing companies, making the source of investment in the assessee company unexplained.
• The applicability of the judgment in CIT vs. Globus Securities & Finance Pvt. Ltd. to the facts of the case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Creditworthiness of Investing Companies

• Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act requires the assessee to prove the identity, creditworthiness, and genuineness of transactions.
• Court's Interpretation and Reasoning: The Tribunal found that the identity and creditworthiness of the corporate shareholder, M/s. Lupin Commodities Pvt. Ltd., were established through PAN details, financial statements, and bank statements.
• Key Evidence and Findings: The assessee provided financial statements, bank statements, and PAN verification of M/s. Lupin Commodities Pvt. Ltd.
• Application of Law to Facts: The Tribunal held that the assessee had discharged its onus to explain the share capital contribution, and the addition made by the Assessing Officer was unjustified.
• Treatment of Competing Arguments: The Revenue's argument that the creditworthiness was not established was rejected based on the evidence presented.
• Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the addition under Section 68.

Issue 2: Location of M/s. Lupin Commodities Pvt. Ltd.

• Relevant Legal Framework and Precedents: The requirement to verify the existence of the entity involved in transactions.
• Court's Interpretation and Reasoning: The Tribunal noted that the corporate shareholder confirmed the share capital contribution before the Investigation Wing, and no adverse findings were recorded.
• Key Evidence and Findings: Summons and replies from M/s. Lupin Commodities Pvt. Ltd. were considered.
• Application of Law to Facts: The Tribunal found that the non-location of the company at the given address did not affect the genuineness of the transaction.
• Treatment of Competing Arguments: The Tribunal dismissed the Revenue's concerns about the company's location as irrelevant to the transaction's genuineness.
• Conclusions: The Tribunal upheld the CIT(A)'s decision, finding no merit in the Revenue's argument.

Issue 3: Source of Source

• Relevant Legal Framework and Precedents: The principle that the assessee is not required to prove the source of the source.
• Court's Interpretation and Reasoning: The Tribunal relied on precedents such as CIT vs. Lovely Exports (P) Ltd. to conclude that the assessee need not prove the source of the source.
• Key Evidence and Findings: The Tribunal found that the assessee provided sufficient evidence of the shareholder's identity and creditworthiness.
• Application of Law to Facts: The Tribunal applied the legal principle that the source of the source need not be explained.
• Treatment of Competing Arguments: The Tribunal rejected the Revenue's argument that the assessee must prove the source of the source.
• Conclusions: The Tribunal upheld the CIT(A)'s decision, affirming that the source of the source was not required to be explained.

Issue 4: Applicability of CIT vs. Globus Securities & Finance Pvt. Ltd.

• Relevant Legal Framework and Precedents: The relevance of the CIT vs. Globus Securities & Finance Pvt. Ltd. case to the present facts.
• Court's Interpretation and Reasoning: The Tribunal distinguished the facts of the present case from the Globus Securities case, noting that the latter involved accommodation entries.
• Key Evidence and Findings: The Tribunal found no evidence of accommodation entries in the present case.
• Application of Law to Facts: The Tribunal concluded that the Globus Securities case was not applicable to the present facts.
• Treatment of Competing Arguments: The Tribunal dismissed the Revenue's reliance on the Globus Securities case as inapplicable.
• Conclusions: The Tribunal upheld the CIT(A)'s decision, finding the Globus Securities case distinguishable.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "The assessee has established and satisfied all the three ingredients being identity, creditworthiness and genuineness of share capital contribution to explain credit in terms of provisions of section 68 of the Act."
• Core Principles Established: The assessee is not required to prove the source of the source; the identity, creditworthiness, and genuineness of the transaction are sufficient to discharge the onus under Section 68.
• Final Determinations on Each Issue: The Tribunal upheld the CIT(A)'s decision to delete the addition under Section 68, finding that the assessee had adequately explained the share capital contribution.