2019 (4) TMI 198 - AT - Income Tax

Addition u/s 68 - unexplained share application money received from the Holding Company - identity of the Investor, its creditworthiness and the genuineness of the transaction - assessee-company has even explained the source of the source - ultimate beneficiary of the unaccounted funds - Held that - Burden upon assessee-company u/s 68 to prove the identity of the Investor, its creditworthiness and the genuineness of the transaction, have been proved by the assessee-company, which have been correctly appreciated and accepted by the CIT(A) for the purpose of deleting the addition. No addition could be made merely on presumption as has been done in the present case. Since the similar addition have been deleted by the CIT(A) in assessment year 2004- 2005 and the Departmental Appeal have been dismissed by the Tribunal and similar addition have been deleted in the case of Mr. Suresh Nanda by ITAT on substantive basis and the Order is confirmed by the Hon ble Delhi High Court, therefore, the issue is covered in favour of the assessee by the Order of the Tribunal in its own case as well as in the case of Mr. Suresh Nanda 2015 (5) TMI 938 - DELHI HIGH COURT . Therefore, there is no justification to make the addition against the assessee-company. - decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition of unexplained share application money received from the Holding Company M/s. Palm Technologies (P) Ltd., Mauritius for the assessment years 2008-2009 and 2009-2010.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Unexplained Share Application Money:

The Revenue challenged the deletion of the addition of ?7,92,19,406/- for the assessment year 2008-2009 and ?2,34,96,795/- for the assessment year 2009-2010, made by the assessing officer on account of unexplained share application money received from the Holding Company M/s. Palm Technologies (P) Ltd., Mauritius.

Assessment Year 2008-2009:

The assessee, a company, filed a return of income declaring a loss of ?13,72,942/-. The assessing officer noted that the assessee received share application money of ?7,92,19,406/- from M/s. Palm Technologies (P) Ltd., Mauritius. The assessee submitted various documents to prove the creditworthiness of the investor, including the certificate of incorporation, tax resident certificate, bank account details, and balance sheet of the investor company.

The assessing officer, after analyzing the balance sheet, noted that the investment was financed through borrowings and made a reference to the Government of Mauritius for further details. The Government of Mauritius provided the income statement and balance sheet of the investor company, confirming the source of funds as loans/shareholders loans.

Despite the documentary evidence, the assessing officer held that the investment was financed through borrowings from entities controlled by Shri Suresh Nanda and treated the receipts as unexplained, making an addition of ?7,92,19,406/-.

The assessee challenged the addition before the Ld. CIT(A), who deleted the addition, following the decision for the assessment year 2004-2005 in the assessee's own case, where a similar addition was deleted. The Ld. CIT(A) found that the arguments, facts, and submissions of the Revenue were the same as in the earlier year.

Arguments by the Revenue and Assessee:

The Ld. D.R. argued that the resources of the investor were very small and relied on various judicial decisions to support their contention. The Learned Counsel for the Assessee reiterated the submissions made before the authorities below and referred to previous orders where similar additions were deleted. The Counsel also highlighted that the Government of Mauritius confirmed the source of funds and the investment made by the investor company.

The assessee submitted documents to prove the identity, creditworthiness, and genuineness of the transaction, which were not doubted or disputed by the authorities below. The Counsel further argued that the source of the source was also explained, even though it was not required by law.

Tribunal's Findings:

The Tribunal considered the rival submissions and the material on record. It noted that the assessee produced documentary evidence proving the identity of the investor, its creditworthiness, and the genuineness of the transaction. The Tribunal also observed that similar additions were deleted in the earlier years, and the Departmental Appeals were dismissed by the Tribunal and confirmed by the Hon’ble Delhi High Court.

The Tribunal held that the burden upon the assessee under section 68 of the Income Tax Act, 1961, was discharged by proving the identity of the investor, its creditworthiness, and the genuineness of the transaction. It found no justification for the addition made by the assessing officer, as it was based on presumption. The Tribunal dismissed the Departmental Appeal for the assessment year 2008-2009.

Assessment Year 2009-2010:

The issue for the assessment year 2009-2010 was the same as in the assessment year 2008-2009. Following the reasons for the decision in the earlier year, the Tribunal dismissed the appeal of the Department for the assessment year 2009-2010.

Conclusion:

Both appeals of the Department were dismissed, and the orders of the Ld. CIT(A) deleting the additions were upheld. The Tribunal pronounced the order in the open court.