2020 (2) TMI 250 - AT - Income Tax

Addition u/s 68 - share application money and premium unexplained - HELD THAT - Investment made by the share applicant has been confirmed and also the source from where the investment has been made and also the PAN and the ward where the share applicant is being assessed is also mentioned. The copy of ITRs have also been filed for A.Y. 2011-12 and 2012-13 with balance sheet, profit and loss account and its annexures. It is also stated that they will be glad to furnish further information, if so desired. It may be mentioned that similar replies have been received from other share applicants namely M/s Bhavtarani Sales Pvt. Ltd., M/s Chaturbhuj Agencies Pvt. Ltd. and M/s Toor Finance Company Ltd. From the evidence/s placed on record by the assessee as well as share applicants, it is seen that the identity and existence of share applicants cannot be doubted as the replies have been received in response to notice issued u/s 133(6) of the Act. By placing on record the bank account particulars, PAN, ITRs and financials etc. the assessee has also submitted the prima-facie material to prove the creditworthiness and genuineness of transactions. In such circumstances, non-production of directors, without bringing any contrary material on record, cannot be adversely viewed against the assessee - there is no infirmity in the order of the Ld. CIT (A) vide which, after considering all these evidences, the impugned addition made on account of share application money and premium has been deleted. Unconfirmed unsecured loans - Copy of bank account of creditor is placed and copy of ITR for A.Y. 2012-13 showing income of ₹ 6,40,525/- is placed and the audit report for the year under consideration has been placed . Similar reply has been filed in respect of the other two creditors namely M/s Franklin Leasing and Finance Pvt. Ltd. and M/s RKG Finvest Ltd. It is also seen that to all these creditors, interest has been paid by the assessee after due deduction of tax at source and repayment has also been made through banking channels. In the case of M/s Franklin Leasing and Finance Pvt. Ltd, the evidence of repayment of loans have been filed and in the case of M/s RKG Finvest Ltd such evidence has been filed at pages 212 to 215. Further, in the case of M/s RKG Finvest Ltd the assessment has been framed u/s 143(3) for A.Y. 2012-13 and copy of assessment order dated 08-08-2014 in the case of M/s RKG Finvest Ltd has been filed. Keeping in view the above position, we are of the opinion that there is no infirmity in the order of Ld. CIT (A) vide which, after considering all these evidences, the impugned addition to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition of ?1,57,00,000/- on account of unconfirmed share capital/premium and unsecured loans under Section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unconfirmed Share Capital/Premium and Unsecured Loans:

The department appealed against the order of the Commissioner of Income Tax (Appeals) [CIT (A)], which deleted the addition of ?1,57,00,000/- made by the Assessing Officer (AO). This amount included ?1,00,00,000/- on account of share capital and premium and ?57,00,000/- on account of unconfirmed unsecured loans. The AO had made this addition under Section 68 of the Income Tax Act, 1961, on the grounds that the assessee failed to establish the identity, genuineness, and creditworthiness of the source of funds received.

Unconfirmed Share Capital/Premium:

The AO's scrutiny revealed that the assessee received ?1,00,00,000/- from four companies. The AO issued notices under Section 133(6) to these companies, and replies were received, including Income Tax Returns (ITRs), bank statements, and confirmations. However, the AO was not satisfied with the financial status of these companies and doubted their creditworthiness, as some notices were initially returned undelivered. The AO also made inquiries through an inspector, who reported that some companies were not found at the specified addresses.

The CIT (A) deleted the addition, noting that the assessee had submitted complete details, including confirmations, ITRs, and bank statements. The CIT (A) found that the companies were engaged in business activities, assessed to income tax, and the transactions were through proper banking channels. The Tribunal upheld this finding, emphasizing that the identity and existence of the share applicants were confirmed through responses to notices under Section 133(6). The Tribunal also cited precedents where non-production of directors without contrary material could not be adverse to the assessee.

Unconfirmed Unsecured Loans:

The AO also added ?57,00,000/- received as unsecured loans from three companies, doubting their creditworthiness. Similar to the share capital issue, the AO issued notices under Section 133(6) and received replies with ITRs, bank statements, and confirmations. The CIT (A) deleted this addition, noting that the loans were received through proper banking channels, interest was paid with TDS deducted, and the loans were repaid in subsequent years. The Tribunal upheld this, noting that the creditors were Non-Banking Financial Companies (NBFCs) registered with the RBI and assessed to income tax.

Distinguishing Case Law:

The department cited the Supreme Court decision in Pr. CIT vs. NRA Iron Steel Pvt. Ltd., where the addition was upheld due to non-production of bank statements and non-existent share applicants. The Tribunal distinguished this case, noting that in the present case, replies were received to all notices, and the share applicants and lenders provided comprehensive documentation, including bank statements and ITRs.

Conclusion:

The Tribunal found no infirmity in the CIT (A)'s order deleting the addition of ?1,57,00,000/- and dismissed the department's appeal, affirming that the assessee had discharged its onus of proving the identity, genuineness, and creditworthiness of the transactions. The Tribunal emphasized that mere non-production of directors could not be grounds for addition when substantial evidence was provided. The appeal by the revenue was dismissed, and the relief granted by the CIT (A) was upheld.