2025 (3) TMI 760 - AT - Income Tax

Assessment u/s 153A - Unexplained share capital - CIT(A) deleted addition - HELD THAT - No material has been brought for our consideration to interfere with the impugned order of the Ld. CIT(A) on merits. CIT(A) has relied on the order in the case of Lovely Exports Pvt Ltd 2008 (1) TMI 575 - SC ORDER and in the case of Divine Leasing 2007 (11) TMI 627 - SC ORDER CIT(A) has also relied on the order of the Hon ble Jurisdictional Allahabad High Court in the case of Jaya Securities Ltd Vs. CIT 2007 (5) TMI 552 - HIGH COURT OF ALLAHABAD Whether any addition can be made in the absence of incriminating material found in the course of search u/s 132 - The matter is covered in favour of the assessee by precedents in the case of PCIT vs Abhisar Buildwell (P.) Ltd. 2023 (4) TMI 1056 - SUPREME COURT and Smt Shashi Agarwal 2024 (10) TMI 533 - ITAT LUCKNOW as there is material on record to indicate that addition made by the AO was based on incriminating material found in the course of search u/s 132 of the Act. Appeal of Revenue stands dismissed.

ISSUES PRESENTED and CONSIDERED

The core legal issue considered in this judgment was whether the addition of Rs. 4,75,00,000/- to the assessee's income as unexplained share capital and share premium by the Assessing Officer (AO) was justified. This involved examining whether the identity, genuineness, and creditworthiness of the transactions relating to the share capital and premium were sufficiently explained and whether the deletion of this addition by the Commissioner of Income Tax (Appeals) [CIT(A)] was correct.

ISSUE-WISE DETAILED ANALYSIS

1. Relevant Legal Framework and Precedents

The legal framework primarily involved Section 68 of the Income Tax Act, 1961, which deals with unexplained credits. The precedents considered included the Supreme Court decisions in the cases of Lovely Exports Pvt Ltd and Divine Leasing, which established principles regarding the treatment of share capital as unexplained income. Additionally, the judgment also referenced the case of Jaya Securities Ltd vs. CIT by the Allahabad High Court, which supported the non-addition of share capital as unexplained income in similar circumstances.

2. Court's Interpretation and Reasoning

The Tribunal noted that the CIT(A) had deleted the addition based on the identity and regular filing of income tax returns by the shareholders. The CIT(A) found that the shareholders were companies with PANs, and the transactions were routed through bank accounts and recorded in the books of accounts, which were statutorily audited. The Tribunal agreed with the CIT(A) that the AO did not conduct further inquiries regarding the shareholders despite having all the relevant details, thus implicitly accepting their identity.

3. Key Evidence and Findings

The CIT(A) based its decision on the evidence that the shareholders were registered companies regularly filing their returns, and the transactions were properly recorded and audited. The Tribunal found no incriminating documents during the search under Section 132 of the Act, which could justify the addition made by the AO.

4. Application of Law to Facts

The Tribunal applied the precedents from the Supreme Court and the Allahabad High Court, which supported the non-addition of share capital as unexplained income when the identity of the shareholders is established, and no incriminating evidence is found. The Tribunal found that the CIT(A) correctly applied these principles in deleting the addition.

5. Treatment of Competing Arguments

The Tribunal considered the arguments of the Departmental Representative, who supported the AO's addition, and the Authorized Representative for the assessee, who defended the CIT(A)'s deletion of the addition. The Tribunal found the latter's arguments more convincing, given the lack of incriminating evidence and the established identity of the shareholders.

6. Conclusions

The Tribunal concluded that the CIT(A) was correct in deleting the addition of Rs. 4,75,00,000/- as unexplained share capital and premium. The Tribunal declined to interfere with the CIT(A)'s order, as it was consistent with the legal precedents and the evidence on record.

SIGNIFICANT HOLDINGS

The Tribunal upheld the CIT(A)'s decision, emphasizing the legal principle that no addition under Section 68 can be made in respect of share capital if the identity of the shareholders is established and no incriminating evidence is found. The Tribunal cited the Supreme Court's decision in Lovely Exports Pvt Ltd, stating, "No addition under section 68 could be made in respect of the subscription amount towards the share capital of a company Limited by shares whether it is private or public..." This principle was crucial in affirming the CIT(A)'s deletion of the addition.

The Tribunal's final determination was to dismiss the Revenue's appeal, thereby upholding the CIT(A)'s order and rejecting the addition made by the AO. This decision reinforced the necessity of substantive evidence for additions under Section 68, particularly concerning share capital and premium.

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