2021 (9) TMI 257 - AT - Income Tax

Unexplained cash credits u/s 68 - Bogus share capital and share premium - as per revenue assessee company has failed to prove the identity, creditworthiness and the genuineness of the transactions - Applicability of amended provisions of section 68 - Need to prove source of the source - HELD THAT - AO has himself called for the above details from the Investor companies, to satisfy himself as regards the identity of the Investors, the genuineness of the transactions, as also the creditworthiness of the Investors. Assessee company has discharged its onus to prove the share capital by establishing the identity of the shareholders, the genuineness of the transactions and even the creditworthiness of the shareholders. AO has not even an iota of evidence to hold that the share capital is non-genuine since in the inquiry carried out by him the share capital has been found to be genuine and the findings in the assessment order are not relevant as they are pertaining to some other assessee and not to the assessee under consideration - we note that despite of complete compliance made by the Investor companies and furnishing of all the details as required by AO to establish the identity, creditworthiness and genuineness of the transaction, the impugned assessment order as passed by the learned AO is absolutely erroneous. As the amended provisions of section 68, is not applicable to the assessee company under consideration, as the assessee s, assessment year is 2012-13, therefore the assessee under consideration need not to prove source of the source. We find that the assessee had given the complete details about the share applicants clearly establishing their identity, creditworthiness and genuineness of transaction proved beyond doubt and had duly discharged its onus in full. Nothing prevented the Learned AO to make enquiries from the assessing officers of the concerned share applicants for which every details were very much made available to him by the assessee - Decided in favour of assessee.

Issues Involved:
1. Treatment of share capital and premium as unexplained cash credits under section 68 of the Income Tax Act, 1961.
2. Examination of identity, creditworthiness, and genuineness of transactions related to share capital and premium.
3. Compliance with procedural requirements and documentation by the assessee.

Issue-wise Detailed Analysis:

1. Treatment of Share Capital and Premium as Unexplained Cash Credits:
The primary issue in this case was whether the share capital and premium amounting to ?1,00,00,000 received by the assessee during the assessment year 2012-13 should be treated as unexplained cash credits under section 68 of the Income Tax Act, 1961. The Assessing Officer (AO) had made an addition of ?1,00,00,000, considering the share capital and premium as unexplained cash credits. The AO's decision was based on the findings that the investor companies lacked creditworthiness and the transactions were not genuine. The AO noted that cash deposits were made at the third layer of banking transactions and funds were transferred by known entry operators running various shell companies.

2. Examination of Identity, Creditworthiness, and Genuineness:
The assessee contended that all transactions were duly supported by share application forms, acknowledgments of return of income, audited financial statements, bank statements, balance sheets, and other relevant documents. The assessee argued that the transactions were made through proper banking channels and the investor companies were registered with the Registrar of Companies (ROC) and were active companies as per ROC records. The assessee furnished detailed documentary evidence to establish the identity, genuineness, and creditworthiness of the investors. The AO issued notices under section 133(6) of the Act to the investor companies, which were duly served, and responses were received with supporting documents, including copies of income tax returns, bank statements, and share certificates.

3. Compliance with Procedural Requirements and Documentation:
The Tribunal noted that the assessee had discharged the primary onus under section 68 of the Act by providing comprehensive details and supporting documents to prove the identity, creditworthiness, and genuineness of the share capital and premium received. The Tribunal emphasized that the AO did not have any evidence to hold that the share capital was non-genuine. The findings in the assessment order were not relevant to the assessee under consideration. The Tribunal also highlighted that the amended provisions of section 68, applicable from assessment year 2013-14, were not applicable to the assessee's case for assessment year 2012-13. Therefore, the assessee was not required to prove the source of the source.

Conclusion:
The Tribunal concluded that the assessee had provided sufficient evidence to establish the identity, creditworthiness, and genuineness of the transactions. The AO's addition of ?1,00,00,000 as unexplained cash credits was deemed erroneous. The Tribunal relied on judicial precedents, including the Supreme Court's decision in CIT vs Lovely Exports (P) Ltd, which held that the company receiving share application money only needed to prove the existence of the shareholders. The Tribunal allowed the appeal filed by the assessee and deleted the addition made by the AO.

Result:
The appeal filed by the assessee was allowed, and the addition of ?1,00,00,000 made by the AO was deleted.

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