2022 (11) TMI 519 - AT - Income Tax

Addition on account of share application money received - Assessee had not discharged the onus of proving the identity of creditor, the capacity of the persons advancing the money and the genuineness of the transaction regarding share application money - HELD THAT - The respondent has proved the identity of the investor companies by furnishing their PAN, return of income filed for the year under consideration. Further, the respondent proved the genuineness of the transactions by submitting bank statements, share allotment letter. With regards to the credit worthiness of the party, the respondent has submitted the books of accounts, return of income and audit report of the investor companies. Even, both the investor companies have also submitted the documents as required by the AO. Further, the director of the company has appeared before the AO and confirmed the transactions. The transaction took place through proper banking channels. The audited books of accounts of assessee and investor companies were available with the assessee and the AO has not found any infirmity in the books. Therefore, it is quite apparent that the respondent has discharged his onus of substantiating the identity, genuineness and creditworthiness of the investors. Appeal of the Department is dismissed.

Summary

Issues Involved:
1. Deletion of addition made by the AO on account of share application money received.
2. Whether the assessee discharged the onus of proving the identity, capacity, and genuineness of the share application money transaction.

Issue-Wise Detailed Analysis:

1. Deletion of Addition Made by the AO on Account of Share Application Money Received:
The Department contested the deletion of the addition made by the Assessing Officer (AO) concerning share application money received by the assessee. The AO had treated the share application money of Rs. 2,37,00,000/- received from two Kolkata-based companies as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The AO's basis for this addition was the non-existence of the investor companies at their given addresses, as reported by the Investigation Wing, Kolkata. However, the First Appellate Authority (CIT(A)) found the assessee's documents and explanations satisfactory and allowed the appeal, stating that prior to the amendment of Section 68 by the Finance Act, 2012, taxpayers were not required to explain the source of the source of funds.

2. Whether the Assessee Discharged the Onus of Proving the Identity, Capacity, and Genuineness of the Share Application Money Transaction:
The assessee submitted various documents, including the return of income, computation of income, audit report, bank statements, annual return filed with ROC, and share allotment letters. Notices under Section 133(6) were issued to the investor companies, which confirmed the transactions and submitted the requisite documents. The AO accepted the sanctity and veracity of these documents but still treated the transaction as unexplained due to the non-satisfactory explanation of the source of the source of investment.

The CIT(A) observed that the financial statements, bank statements, and confirmations from the investor companies were part of the assessment records and were duly examined by the AO. The CIT(A) noted that the AO had not found any infirmity in these documents. Further, the CIT(A) emphasized that for the period before the amendment of Section 68 by the Finance Act, 2012, the assessee was not required to explain the source of the source.

The Tribunal noted that the investor companies had confirmed the transactions, and their key persons had confirmed the transactions during the assessment proceedings. The Tribunal referred to the judgment of the Jurisdictional Bombay High Court in the case of Gagandeep Infrastructure Pvt. Ltd., which held that the assessee needs to prove the identity of the creditor, genuineness of the transaction, and creditworthiness of the party. The Tribunal found that the assessee had discharged its onus by providing PAN, return of income, bank statements, share allotment letters, and audited books of accounts of the investor companies. The Tribunal also referred to the Bombay High Court's decision in Apeak Infotech vs PCIT, which held that share capital and share premium are capital receipts and cannot be considered as income in the hands of the assessee.

The Tribunal further cited the Bombay High Court's decision in Gaurav Triyugi Singh vs ITO, which held that the taxpayer is only required to explain the source of the credit and not the source of the source. The Tribunal also referred to the ITAT Nagpur's decision in the case of DCIT Cir-4 vs M/s Leverage Fintrade Pvt. Ltd., which held that the AO was not justified in making an addition under Section 68 when the assessee had produced all the necessary documents.

The Tribunal concluded that the assessee had submitted all requisite documents and that the AO had not found any infirmity in the books of accounts. The Tribunal upheld the CIT(A)'s order, stating that the assessee had proved the identity, genuineness, and creditworthiness of the investors, and there was no requirement to explain the source of the source for the assessment year 2008-09.

Conclusion:
The Tribunal dismissed the Department's appeal, upholding the CIT(A)'s order that deleted the addition made by the AO on account of share application money received. The Tribunal emphasized that the assessee had discharged its onus of proving the identity, genuineness, and creditworthiness of the investors and that there was no requirement to explain the source of the source for the assessment year in question.