2025 (3) TMI 446 - AT - Income Tax

Addition u/s 68 - share application money/premium received from non-resident investors - details and evidences submitted by the assessee were not considered sufficient by AO to prove the genuineness of the transaction of receipt of share application money/ premium money - CIT(A) deleted addition - HELD THAT - Having considered the various details furnished by the assessee we find no merits in the addition made by the AO u/s 68 by considering the share application money received by the assessee as unexplained cash credit as the assessee has proved the identity and creditworthiness of the investors/shareholders and the genuineness of the transaction. Accordingly no infirmity in the impugned order in deleting the addition made by the AO u/s 68 on this issue. As a result the same is upheld and the grounds raised by the Revenue pertaining to this issue are dismissed. Addition u/s 68 in respect of trade payables - From a plain reading of the provisions of section 68 of the Act it is evident that where any sum is found credited in the books of the assessee and the assessee offers no explanation about the nature and source thereof or the expansion offered by him is not in the opinion of the AO satisfactory then the sum so credited may be chargeable to income tax as the income of the assessee. In the present case it is discernible that the sum that was treated as unexplained credit by the AO and added to the total income of the assessee u/s 68 is not credited in the assessee s books. Rather the same is the trade payables i.e. the trade payable amount outstanding in the books of the assessee in respect of the purchases made by it and thus the same represents a liability which was required to be paid subsequently. As in Kulwinder Singh 2017 (7) TMI 957 - PUNJAB AND HARYANA HIGH COURT held that provisions of section 68 are not attracted to amount representing purchases made on credits. No infirmity in the findings of the learned CIT(A) in deleting the addition made by the AO u/s 68 of the Act on account of trade payables debited to the profit and loss account of the assessee. Revenue appeal dismissed.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

1. Whether the Commissioner of Income Tax (Appeals) [CIT(A)] was correct in deleting the addition of INR 8,53,94,800 under section 68 of the Income Tax Act, 1961, which was attributed to share application money/premium received from non-resident investors.

2. Whether the CIT(A) was justified in holding that INR 4,32,94,944 was received in an earlier year and thus beyond the purview of section 68 of the Act.

3. Whether the CIT(A) was correct in deleting the addition of INR 2,10,38,677 under section 68 of the Act related to trade payables, which were deemed unexplained credits by the Assessing Officer (AO).

4. Consideration of the applicability of the Supreme Court's decision in Principal CIT v. NRA Iron & Steel Pvt. Ltd. regarding the onus on the assessee under section 68.

ISSUE-WISE DETAILED ANALYSIS

1. Addition under Section 68 for Share Application Money

Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act requires the assessee to satisfactorily explain the nature and source of any credit entry in their books. The Supreme Court in Principal CIT v. NRA Iron & Steel Pvt. Ltd. emphasized the assessee's obligation to demonstrate the identity, genuineness, and creditworthiness of the creditors.

Court's Interpretation and Reasoning: The Tribunal examined the evidence provided by the assessee, including bank statements, RBI permissions, and documents establishing the identity and residency of the investors, who were non-residents. The CIT(A) found these documents sufficient to establish the genuineness of the transaction and the creditworthiness of the investors.

Key Evidence and Findings: The assessee submitted passports, residency documents, bank statements, and net-worth certificates to substantiate the identity and creditworthiness of the investors. These documents were deemed adequate by the CIT(A) to rebut the AO's findings.

Application of Law to Facts: The Tribunal agreed with the CIT(A) that the assessee had discharged its onus under section 68 by providing comprehensive documentary evidence.

Treatment of Competing Arguments: The Revenue's reliance on the Supreme Court's decision was addressed by differentiating the facts of the present case, where the assessee provided substantial evidence, from the NRA Iron & Steel case.

Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the addition, concluding that the assessee had satisfactorily explained the share application money.

2. Addition under Section 68 for Trade Payables

Relevant Legal Framework and Precedents: Section 68 pertains to unexplained credits in the books of accounts. The Punjab and Haryana High Court in PCIT v. Kulwinder Singh held that section 68 does not apply to trade payables representing purchases made on credit.

Court's Interpretation and Reasoning: The Tribunal noted that the AO erroneously applied section 68 to trade payables, which are liabilities rather than credits in the books of the assessee.

Key Evidence and Findings: The assessee provided partial details of trade payables, which were not fully verified by the AO. However, the nature of trade payables as liabilities was crucial in the Tribunal's analysis.

Application of Law to Facts: The Tribunal concluded that trade payables do not fall under the purview of section 68, aligning with the precedent set by the Punjab and Haryana High Court.

Treatment of Competing Arguments: The Tribunal dismissed the Revenue's arguments, emphasizing the distinction between unexplained credits and trade payables.

Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the addition related to trade payables, affirming that section 68 was inapplicable.

SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "The assessee has proved the identity and creditworthiness of the investors/shareholders, and the genuineness of the transaction."

Core Principles Established: The judgment reinforces that section 68 requires the assessee to substantiate the identity, genuineness, and creditworthiness of transactions involving credits in their books, but does not extend to liabilities such as trade payables.

Final Determinations on Each Issue: The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s deletion of additions under section 68 for both share application money and trade payables.

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