2021 (10) TMI 75 - AT - Income Tax

Unexplained cash credit u/s 68 - not providing the creditworthiness of the parties and the genuineness of the transactions - scope of pre-amended Sec. 68 - HELD THAT - As the year in the case of the assessee before us is A.Y. 2010-11, therefore, the aforesaid proviso to Sec. 68 of the Act would not be applicable. To sum up, we concur with the view taken by the CIT(A) that not only the assessee had duly substantiated the identity and creditworthiness of the investor companies, as well as proved the genuineness of the transactions in question i.e receipt of share capital and share premium from the aforementioned three shareholder companies, however, independent of that, even otherwise as the aforementioned amounts were received by the assessee company from the abovementioned shareholder companies whose complete details were furnished by the assessee with the A.O, therefore, the same as per the pre-amended Sec. 68 of the Act could not have been assessed as an unexplained cash credit in the hands of the assessee. No infirmity in the view taken by the CIT(A) that the amount received by the assessee company as share capital and share premium from the aforementioned three shareholder companies could not have been assessed as an unexplained cash credit u/s 68 - Decided in favour of assessee.

Issues Involved:

1. Deletion of addition of ?3,25,00,000/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
2. Onus of proving creditworthiness and genuineness of transactions.
3. Compliance with procedural requirements for additional evidence under Rule 46A.
4. Applicability of the first proviso to Section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?3,25,00,000/- as Unexplained Cash Credit:

The Revenue challenged the deletion of ?3,25,00,000/- added by the Assessing Officer (A.O) as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The A.O had observed that the assessee failed to prove the identity and creditworthiness of the shareholders and the genuineness of the transactions. The A.O noted that the assessee did not produce the original share application forms and other documents, leading to the addition of ?3,50,00,000/- as unexplained cash credit.

2. Onus of Proving Creditworthiness and Genuineness of Transactions:

The CIT(A) observed that the assessee provided sufficient documentary evidence to substantiate the genuineness and veracity of the transactions, including copies of incorporation certificates, bank statements, and confirmations from the investor companies. The CIT(A) noted that three out of four shareholder companies complied with the notices issued under Section 133(6) and furnished the requisite details, proving their identity, genuineness, and creditworthiness. The CIT(A) held that the A.O could have summoned the shareholders under Section 131 if he doubted their existence, which he failed to do.

3. Compliance with Procedural Requirements for Additional Evidence:

The CIT(A) admitted additional evidence under Rule 46A, which included copies of acknowledgment of returns, audited financials, confirmations from investor companies, and share application forms. The A.O objected to the admission of additional evidence, arguing that the assessee had sufficient time to furnish these documents during the assessment proceedings. However, the CIT(A) justified the admission of additional evidence, considering it crucial for adjudicating the grounds raised in the appeal.

4. Applicability of the First Proviso to Section 68 of the Income Tax Act, 1961:

The CIT(A) referred to judicial pronouncements, including CIT Vs. Lovely Exports (P) Ltd. and CIT Vs. Creative World Telefilms Ltd., to conclude that the first proviso to Section 68, introduced by the Finance Act, 2012, effective from A.Y 2013-14, was not applicable to A.Y 2010-11. The CIT(A) held that if the A.O believed the share application money was received from bogus shareholders, he should have assessed the said amount in the hands of the shareholders. The CIT(A) concluded that the amounts received from the three shareholder companies could not be held as unexplained cash credit under Section 68.

Conclusion:

The ITAT upheld the CIT(A)'s decision, concluding that the assessee had substantiated the identity, creditworthiness, and genuineness of the transactions. The ITAT agreed that the first proviso to Section 68 was not applicable for A.Y 2010-11 and that the amounts received from the shareholder companies could not be assessed as unexplained cash credit. The appeal of the Revenue was dismissed.

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