2021 (4) TMI 591 - AT - Income Tax

Addition u/s 68 - assessee-company engaged during the year in raising capital by way of share capital and premium on share capital - onus upon assessee to prove identity of the Creditors/Investors, their creditworthiness and genuineness of the transaction - HELD THAT - A.O. on going through the bank statements of both the Investors found that there is receipt of funds from some source. Thus, even the A.O. did not doubt the creditworthiness of both the Investors in the assessment order. Thus the A.O. did not doubt their source at all. The A.O. did not make any enquiry from the income tax record of both the Investor Companies. It is well settled Law that A.O. cannot ask the assessee to prove source of the source. We rely upon Judgment of Hon ble Delhi High Court in the case of CIT vs., Dwarakadhish Investment P. Ltd., 2010 (8) TMI 23 - DELHI HIGH COURT , Rohini Builders 2001 (3) TMI 9 - GUJARAT HIGH COURT , It may also be noted here that when the statement of one of the Director of the Investor Company was recorded, he has explained not only the source of making investment in assessee company, but, also explained the reason why it has made an investment in assessee company at premium. The assessee has explained before the authorities below the reasons for allotting the shares at premium because the assessee has purchased an immovable property in assessment year under appeal and Delhi Government has issued a Notification in the Master Plan which was about to be implemented through which the Government proposes to develop dwelling houses in low density area which would benefit the assessee and the Investors. All these explanation of assessee and Investors have not been doubted by the A.O. The Ld. CIT(A) in his findings have also categorically found that the enquiry report have not been confronted to assessee, therefore, it cannot be read in evidence against the assessee. No material is produced before us to contradict the finding of fact recorded by the Ld. CIT(A). Considering the above evidence and material on record, it is clear that A.O. did not make any enquiry on the documentary evidences filed by assessee and did not doubt the documentary evidences filed by assessee, therefore, initial onus upon the assessee to prove creditworthiness and genuineness of the transaction have been discharged by the assessee. A.O. merely doubted the capacity of the Investors because they have reported low income in their return of income. This cannot be the sole basis to doubt the explanation of assessee. It may be a suspicion of the A.O. without bringing any evidence on record. Rather the documentary evidences produced on record clearly supports the explanation of assessee. Therefore, there were no basis for the A.O. to hold that assessee failed to prove creditworthiness of the Investors. As in the case of ACIT, Central Circle-13, New Delhi vs., M/s. Supreme Placement Services (P) Ltd., New Delh 2021 (3) TMI 720 - ITAT DELHI has dismissed the Departmental appeal. Considering the totality of the facts and circumstances of the case, we do not find any infirmity in the Order of the Ld. CIT(A) in deleting the addition. We, therefore, confirm the Order of the Ld. CIT(A) and dismiss the appeal of the Department.

Summary

Issues Involved:
1. Deletion of addition under Section 68 of the I.T. Act, 1961.
2. Identity, creditworthiness, and genuineness of transactions involving share capital/premium received from corporate entities.

Detailed Analysis of the Judgment:

Deletion of Addition under Section 68 of the I.T. Act, 1961:
The Revenue challenged the deletion of an addition of ?2,12,50,000/- made by the Assessing Officer (A.O.) under Section 68 of the I.T. Act, 1961. The A.O. had added this amount as unexplained cash credits, questioning the creditworthiness and genuineness of the transactions involving two corporate entities, M/s Avanti Vyapaar Pvt. Ltd. and M/s Golden Vyapaar Pvt. Ltd.

Identity, Creditworthiness, and Genuineness of Transactions:
1. Identity of Investors:
- The assessee provided PAN cards, copies of ITR, and RBI Registration Certificates of the investor companies, establishing their identity.
- The Ld. CIT(A) observed that the investor companies were duly incorporated and registered with the RBI as NBFCs, thus confirming their identity.

2. Creditworthiness of Investors:
- The assessee submitted audited accounts, bank statements, and assessment orders of the investor companies, proving their financial capacity.
- The balance sheets of the investor companies showed substantial share capital and reserves, indicating sufficient funds to invest in the assessee company.
- The A.O. noted the meager income declared by the investor companies but did not find any cash deposits in their bank accounts before making the investments.

3. Genuineness of Transactions:
- The assessee provided Form No. 2, confirmations from investors, bank statements showing payments through banking channels, and Board Resolutions for investing in the assessee company.
- The Ld. CIT(A) found that the transactions were genuine as the funds were received through banking channels and supported by necessary documentation.
- The A.O. did not bring any evidence to dispute the genuineness of the transactions despite conducting independent inquiries.

Findings of the Ld. CIT(A):
- The Ld. CIT(A) concluded that the assessee had discharged its burden of proving the identity, creditworthiness, and genuineness of the transactions.
- The A.O. failed to provide any inquiry report to the assessee during the assessment proceedings, violating the principle of natural justice.
- The Ld. CIT(A) relied on several judicial precedents, including decisions of the Hon'ble Supreme Court and various High Courts, to support the deletion of the addition.

Arguments by the Revenue and the Assessee:
- The Revenue argued that the investor companies had shown meager income, questioning their creditworthiness.
- The assessee contended that the investor companies were NBFCs with sufficient funds and provided all necessary documentary evidence to prove the transactions' genuineness.
- The assessee also explained the rationale behind issuing shares at a premium, citing future business prospects and investments in property.

Tribunal's Conclusion:
- The Tribunal upheld the Ld. CIT(A)'s decision, confirming that the assessee had discharged its initial burden of proof under Section 68.
- The Tribunal noted that the A.O. did not conduct further inquiries or provide evidence to contradict the assessee's submissions.
- The Tribunal dismissed the appeal of the Revenue, affirming the deletion of the addition.

Summary:
The Tribunal dismissed the Revenue's appeal, confirming the deletion of the addition under Section 68 of the I.T. Act, 1961. The Tribunal found that the assessee had adequately proved the identity, creditworthiness, and genuineness of the transactions involving share capital/premium received from the corporate entities. The A.O.'s doubts based on the meager income of the investor companies were not substantiated with further evidence, and the documentary evidence provided by the assessee was not disputed.