2019 (3) TMI 1131 - AT - Income Tax

Addition u/s 68 - assessee failed to produce share holders from whom share premium was received - parties did not appear before the AO or the assessee could not produce the parties in person before the AO - CIT-A deleted the addition - identity, creditworthiness and genuineness of the investor companies - case selected for scrutiny and notices u/s 143(2) and 142(1) issued - discharge of initial onus - HELD THAT - In this case, the AO, except doubting genuineness of transaction for charging higher premium on shares, did not bring on record any other evidence to disprove the voluminous evidences filed by the assessee in respect of 5 companies to prove identity and genuineness of transactions. In fact, the assessee has filed complete set of documents for all 5 subscribers. The parties have responded to notices u/s 133(6) by filing necessary evidences. Therefore, merely for the reason that the parties did not appear before the AO or the assessee could not produce the parties in person before the AO, the whole set of documents produced to prove the identity and genuineness of transactions, cannot be disregarded when the AO does not have anything more than suspicion in his possession to doubt the transactions. Therefore, we are of the considered view that the AO was erred in bringing to tax share capital received from 5 companies u/s 68 as unexplained credit. Assessee has discharged its initial burden by filing enormous details to prove identity and genuineness of transactions. AO, having accepted the fact that identity has been proved, could not have proceeded to make addition only on the basis of charging higher premium, because charging higher premium on issue of shares is a decision between parties and the AO would not have any role to play as long as genuineness of transaction is not in doubt. - Decided against revenue

Issues Involved:
1. Deletion of addition of ?1,50,00,000/- under Section 68 of the Income Tax Act.
2. Justification of identity, creditworthiness, and genuineness of investor companies based on documentary evidence.
3. Relevance of charging higher share premium and its impact on genuineness of transactions.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68:
The core issue was whether the CIT(A) was justified in deleting the addition of ?1,50,00,000/- made by the AO under Section 68 of the Income Tax Act. The AO had added this amount as income from undisclosed sources, citing that the assessee failed to justify the genuineness of the share capital received from five subscribers. The CIT(A) deleted this addition, concluding that the assessee had satisfactorily proved the identity, creditworthiness, and genuineness of the transactions based on documentary evidence.

2. Identity, Creditworthiness, and Genuineness of Investor Companies:
The CIT(A) analyzed the financial statements and other documents of the five investor companies, concluding that the companies had sufficient net worth and capacity to invest. For instance, Pashupati Enclave Pvt. Ltd. had a net worth of ?9,10,69,683/- and investments amounting to ?7,50,10,000/-. Similar detailed analyses were provided for the other four companies, establishing their financial credibility. The CIT(A) also noted that the identity of these companies was verified through PAN and confirmation of transactions via banking channels. The AO's failure to produce any adverse findings against these documents further supported the CIT(A)'s decision.

3. Charging Higher Share Premium:
The AO questioned the genuineness of the transactions based on the high premium charged on the shares without corresponding business activity. However, the CIT(A) emphasized that the provisions of Rule 11U and 11UA, which pertain to the valuation of shares, were not applicable for the assessment year under consideration (2012-13). The CIT(A) cited several judicial precedents, including the Supreme Court's decision in CIT vs Lovely Exports Pvt Ltd, which held that the genuineness of the transaction, identity, and creditworthiness of the shareholders are the only relevant factors. The CIT(A) concluded that merely questioning the share premium without doubting the identity and creditworthiness of the investors was not sufficient to make an addition under Section 68.

Judicial Precedents:
The CIT(A) and the Tribunal referred to multiple judicial precedents that supported the deletion of the addition. These included:
- CIT vs Lovely Exports Pvt Ltd, where the Supreme Court held that if the share application money is received from alleged bogus shareholders, the department should proceed to reopen their individual assessments rather than adding it as undisclosed income of the assessee.
- CIT vs Gagandeep Infrastructure Pvt. Ltd., where the Bombay High Court ruled that once the identity, genuineness of the transaction, and creditworthiness of the investors are established, the share capital cannot be treated as undisclosed income.
- Several other High Court decisions that reinforced the principle that the burden shifts to the AO to disprove the evidence once the assessee has discharged its initial burden.

Conclusion:
The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal. It concluded that the AO had failed to bring any substantial evidence to disprove the identity, genuineness, and creditworthiness of the transactions. The Tribunal emphasized that the AO's suspicion based on the higher share premium was not sufficient to make an addition under Section 68, especially when the assessee had provided comprehensive documentary evidence. The Tribunal also reiterated that the AO should have reopened the assessments of the individual shareholders if there were doubts about the source of funds, rather than adding the amount as undisclosed income of the assessee.

Final Order:
The appeal filed by the Revenue was dismissed, and the deletion of the addition of ?1,50,00,000/- by the CIT(A) was upheld.

Order Pronouncement:
The order was pronounced in the open court on 08/02/2019.

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