2019 (3) TMI 792 - AT - Income Tax

Addition u/s 68 - genuineness of the share application money received - AO issued notices u/s 133(6)to all subscribers -Reply to all the notices were received by the Assessing Officer alongwith ledger account, bank statements and copies of Income tax returns - discharge of initial onus cast upon assessee - HELD THAT - Once the appellant company filed complete details before the Assessing Officer, then the initial onus upon the assessee company has been discharged to prove the identity of the investor. The appellant company has provided the balance sheet of the investor company s alongwith with their company profiles and details with the Registrar of Companies. The subscriber companies themselves have provided the bank statements and their respective PAN details. It is not the case of the Revenue that the subscriber companies are name lenders or entry providers. Their details are available on public domain on the website of the Registrar of Companies. In the case of Lovely Exports Pvt Ltd 2008 (1) TMI 575 - SUPREME COURT OF INDIA has laid down the ratio that the assessee has to be merely identified as the share holder and the initial onus u/s 68 of the Act stands discharged on mere identification. CIT Vs. Sophia Finance Ltd 1993 (8) TMI 62 - DELHI HIGH COURT has laid down the ratio that if the share holders are identified and it is established that they have invested in the purchase of shares, then the amount received by the company would be regarded as capital received. The assessee has no further onus. Exhibits 123 to 139 of the paper book reveal the proportion of investment made by the share applicant companies in the share capital of the appellant company. The percentage of their investment ranges from 5% to 40%, which means that the share applicant company portfolios include investment in other companies also. There is nothing on record to suggest that the other investments made by the share applicant companies have been treated as bogus in the hands of other companies. The applicant company has successfully discharged the initial onus cast upon it by the provisions of section 68 and, therefore, no addition is called for u/s 68 as unexplained cash credit. - Decided in favour of assessee.

Issues Involved:

1. Sustaining the addition of ?31.56 crores made by the Assessing Officer under Section 68 of the Income Tax Act.
2. Verification of the identity, creditworthiness, and genuineness of the share capital received by the assessee.
3. Compliance with the principles of natural justice by the Assessing Officer.
4. Application of judicial precedents and relevant case laws.

Detailed Analysis:

1. Sustaining the Addition of ?31.56 Crores:

The primary grievance of the assessee was against the CIT(A)'s decision to sustain the addition of ?31.56 crores made by the Assessing Officer under Section 68 of the Income Tax Act. The Assessing Officer had observed an increase in the share capital of the assessee from ?11.94 crores to ?31.56 crores and questioned the identity, creditworthiness, and genuineness of the share capital received. The assessee provided a list of share applicants with full names and addresses, and the Assessing Officer issued notices under Section 133(6) of the Act to cross-verify the genuineness of the share application money received. Despite receiving replies along with ledger accounts, bank statements, and copies of income tax returns, the Assessing Officer concluded that the assessee failed to identify the share applicants and made the addition of ?31.56 crores.

2. Verification of Identity, Creditworthiness, and Genuineness:

The assessee furnished documents from the share applicants, including ledger accounts, bank statements, and income tax returns. These documents were submitted directly to the Assessing Officer in response to notices under Section 133(6) of the Act. The bank statements showed that all transactions were conducted through banking channels. The tribunal noted that the initial onus is on the assessee to establish the identity of the creditor, genuineness of the transaction, and capacity of the lender. The tribunal referenced the Delhi High Court's decision in CIT Vs. Kamadhenu Steel & Alloys, which emphasized that if the investor/shareholder is a company, details such as registered address or PAN identity should be furnished. The tribunal found that the assessee had discharged this initial onus by providing complete details, including balance sheets, company profiles, and details with the Registrar of Companies.

3. Compliance with Principles of Natural Justice:

The tribunal criticized the Assessing Officer for not complying with the principles of natural justice. The Assessing Officer asked the assessee to produce the directors of the subscriber companies on 25.03 and passed the assessment order on 28.03, giving only two days' time. The tribunal noted that this did not provide reasonable and sufficient time for compliance. Moreover, the first appellate authority served summons under Section 131 of the Act to the share applicants, which were duly served, but did not enforce the attendance of the directors of the subscriber companies.

4. Application of Judicial Precedents and Relevant Case Laws:

The tribunal referred to several judicial precedents, including the Delhi High Court's decision in CIT Vs. Kamadhenu Steel & Alloys and Lovely Exports Pvt Ltd, which laid down that once adequate evidence/material is provided to prove the identity of shareholders, genuineness of the transaction, and creditworthiness of the shareholders, the burden shifts to the Revenue to disprove the evidence. The tribunal also referenced the Supreme Court's decision in Lovely Exports Pvt Ltd, which stated that the assessee's onus under Section 68 is discharged on mere identification of the shareholder. The tribunal found that the assessee had provided sufficient evidence to discharge its initial onus and that the Revenue did not provide any additional material to support its move to invoke Section 68.

Conclusion:

The tribunal concluded that the assessee had successfully discharged the initial onus cast upon it by the provisions of Section 68 of the Act. The tribunal set aside the findings of the CIT(A) and directed the Assessing Officer to delete the addition made under Section 68 of the Act. The appeal of the assessee was allowed.

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