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2022 (6) TMI 566 - AT - Income TaxAddition u/s 68 - Share Capital Security Premium' received by the assessee as unexplained credits' - HELD THAT - We observed that the company has been found by fresh IIT graduates as a startup company looking to the future potential in online gaming business. The Assessing Officer has given categorically finding that the source of fund was not doubted. CIT(A) has also considered the decision in the case of Major Metal Ltd 2012 (4) TMI 227 - BOMBAY HIGH COURT wherein the addition was sustained on the ground that genuineness of the transaction was not proved and creditworthiness of the creditor was also not proved whereas, in the present case the Assessing Officer has accepted the nature and source of funds. In our opinion, when the source of fund is not doubted by the Assessing Officer then he is not justified in making addition in terms of section 68 of the Act. Any addition for receipt of share premium having value more than the market value of the shares could be made in terms of section 56(2) of the Act and not u/s 68 of the Act. - Decided in favour of assessee.
Issues:
1. Addition of unexplained credits under section 68 of the Income-tax Act, 1961. 2. Justification of deletion of the addition of Rs.1,99,99,815/- made under section 68 of the Income-tax Act, 1961. 3. Applicability of section 68 in the context of share capital and security premium received by the assessee. Analysis: Issue 1: Addition of unexplained credits under section 68 of the Income-tax Act, 1961 The Assessing Officer raised concerns about the huge premium charged by the assessee-company, considering it unscientific and unjustified due to the company's consistent losses. The AO observed that the share premium collected was not utilized for business purposes, leading to treating the entire value of the share along with share premium as unexplained cash credit under section 68 of the Act. Issue 2: Justification of deletion of the addition made under section 68 Upon appeal, the Ld. CIT(A) deleted the addition, noting that the source of funds was not disputed by the Assessing Officer, who only questioned the justification of the share premium. The Ld. CIT(A) considered the submissions of the assessee, emphasizing that the source of credit was proved and accepted, and the nature and source of funds were acknowledged by the Assessing Officer. The Ld. CIT(A) highlighted that section 68 was not applicable when the source of funds was not doubted, and any addition for excess share premium could be made under section 56(2) of the Act. Issue 3: Applicability of section 68 in the context of share capital and security premium The Tribunal upheld the decision of the Ld. CIT(A), emphasizing that the Assessing Officer's doubts regarding the share premium were unfounded as the source of funds was not questioned. The Tribunal noted that the company, founded by fresh IIT graduates as a startup, had its source of funds accepted by the Assessing Officer. The Tribunal referenced the decision of the Bombay High Court in a similar case to differentiate the necessity of proving genuineness and creditworthiness of creditors, which was not the case here. The Tribunal concluded that the addition under section 68 was unjustified when the source of funds was not in question, and upheld the Ld. CIT(A)'s reasoned order. In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the deletion of the addition made under section 68 of the Income-tax Act, 1961, as the source of funds was not doubted, and the doubts regarding the share premium were unfounded.
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