2021 (6) TMI 199 - AT - Income Tax

Unexplained share application and Share Premium - Addition u/s 68 - Onus to prove the identity, creditworthiness and genuineness - CIT- A deleted the addition - HELD THAT - As in this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee, cannot be brushed aside by the AO to draw adverse view, cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, we hold that an addition cannot be sustained merely based on inferences drawn by circumstance. We are inclined to uphold the order of the Ld. Commissioner of Income Tax (Appeals). Section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature and source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO's record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 of the Act. Therefore, we confirm the order of ld CIT(A) in deleting the addition - Decided against revenue.

Summary

Issues Involved:

1. Whether the CIT(A) was justified in deleting the addition made on account of unexplained share application and share premium amounting to ?4,50,00,000.
2. Whether the order of the Assessing Officer (AO) should be upheld by the CIT(A).
3. Whether the order of the CIT(A) should be set aside and the order of the AO restored.

Detailed Analysis:

1. Justification of CIT(A) in Deleting the Addition:
The AO observed that the assessee company received substantial amounts towards share capital and share premium from various investors. During scrutiny, the AO questioned the identity, creditworthiness, and genuineness of these transactions. Notices under section 133(6) were issued to the investors, and responses were received from most of them. However, the AO rejected the assessee’s contentions, treating the amount as unexplained cash credits under section 68 of the Income Tax Act and added it back to the total income.

The CIT(A) deleted the addition, noting that the assessee had provided ample evidence, including share application forms, bank statements, board resolutions, and income tax returns of the investors. The CIT(A) found that the AO did not discuss these documents in the assessment order nor provided adverse findings against them. The CIT(A) concluded that the assessee had discharged its onus to prove the identity, creditworthiness, and genuineness of the transactions.

2. Upholding the AO’s Order by CIT(A):
The Revenue argued that the CIT(A) failed to appreciate that the AO had disproved the identity of the subscribers, shifting the onus to the assessee, which it failed to discharge. The Revenue contended that the CIT(A) merely accepted the assessee’s submissions without critically examining the evidence. The AO had noted that some notices were unserved and claimed the addresses provided were bogus. However, the CIT(A) found this contradictory as the AO had acknowledged receiving responses from most investors.

3. Setting Aside CIT(A)’s Order and Restoring AO’s Order:
The CIT(A) observed that the AO’s reasons for questioning the share premium and the business activity of the assessee were factually incorrect. The CIT(A) noted that the share premium was justified based on the book value of the shares and the assessee was engaged in real estate development, thus not generating regular revenue. The CIT(A) also noted that the share applicant companies were assessed to tax, and most had undergone scrutiny assessments without adverse findings.

Conclusion:
The Tribunal upheld the CIT(A)’s order, concluding that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the share applicants. The Tribunal noted that the AO did not provide cogent reasons to reject the evidence. The Tribunal emphasized that once the assessee discharges its onus, the burden shifts to the AO to disprove the evidence, which was not done in this case. Therefore, the addition under section 68 was not warranted, and the appeal of the Revenue was dismissed.