2018 (6) TMI 403 - AT - Income Tax

Addition on account of share capital treating the same as unexplained cash credit under Section 68 - Held that - Even if the issue of share capital is taxed no addition can be made in assessee s hands if identity of share holder is established. The assessee is not required to show source of shareholders funds. See case of Shri Ram Tie Up Pvt. Ltd,. (2018 (3) TMI 1403 - ITAT KOLKATA). Set aside the order passed by the authorities below on the issue in dispute and restore the matter to the ld. AO to decide the same denovo upon giving a reasonable opportunity of hearing to the assessee upon taking into consideration the entire evidence already placed before the authorities below as well as other documentary evidences which the assessee may choose to file in support of his case on the issue. Appeal of the assessee allowed for statistical purposes.

Summary

Issues Involved:
1. Justification of the addition of ?55,42,00,000 made by the AO on account of share capital treated as unexplained cash credit under Section 68 of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Justification of the Addition of ?55,42,00,000 as Unexplained Cash Credit:

The core issue in the appeal was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in confirming the addition of ?55,42,00,000 made by the Assessing Officer (AO) on account of share capital, which was treated as unexplained cash credit under Section 68 of the Income Tax Act, 1961.

Facts of the Case:
During the assessment proceedings, the AO observed that the assessee had received share capital of ?55,42,00,000, which included a share premium of ?53,15,29,000 at ?1990 per share for 2,67,100 shares issued to 19 different Private Limited Companies. The AO noted that the appellant had no business activity, it was its first year of operation, and had declared a net income of only ?1923. Despite this, shares were issued at a high premium. The AO made several observations:
- The shareholder companies and companies from whom some shareholder companies had received money had common addresses and directors.
- The companies had nominal activities, fixed assets, and declared nominal income. The immediate source of investment was the sales proceeds of shares of similar companies.
- The assessee company had no fixed assets, and the closing bank balance was ?88,160. Almost the entire funds raised as share capital were invested in unquoted shares of private limited companies, indicating a lack of profit motive.
- Verification of the bank account revealed that it was opened around the same time as when the share capital was received, with sums deposited being immediately withdrawn.

The AO issued summons to the directors of the assessee company and the shareholder companies to examine the identity, creditworthiness, and genuineness of the transactions. However, there was no compliance from either the assessee company or the investor companies.

Arguments by the Assessee:
The assessee argued that the AO had not made an independent inquiry to disprove the claim despite having all relevant documents. The assessee contended that the AO passed the order in a mechanical manner without giving sufficient opportunity for representation. The assessee requested the matter be restored to the AO for fresh consideration.

Tribunal's Observations:
The Tribunal reviewed the materials on record and referred to judgments in similar cases, including ITO vs Nilkanth Finbuild Ltd and M/s Sriram Tie up Pvt. Ltd. vs ITO. The Tribunal noted that in similar cases, it was held that if the identity of the shareholder is established, no addition can be made in the assessee's hands, and the assessee is not required to show the source of shareholders' funds. The Tribunal also referred to the case of M/s Sukanya Merchandise Pvt. Ltd. vs ITO, where a similar issue was restored to the AO for fresh assessment due to lack of opportunity for the assessee to present evidence.

Conclusion:
The Tribunal, following the judgments in similar cases, set aside the order of the CIT(A) and restored the matter to the AO for de novo assessment. The AO was directed to give the assessee a reasonable opportunity of hearing and to consider the entire evidence already placed before the authorities as well as any additional documentary evidence the assessee may choose to file.

Result:
The appeal of the assessee was allowed for statistical purposes, and the matter was remanded back to the AO for fresh consideration.

Order Pronounced:
The order was pronounced in the Court on 01.06.2018.