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2022 (11) TMI 815 - AT - Income TaxUnexplained cash credit u/s 68 - Bogus share capital and share premium - non compliance to summons issued u/s 131 of the Act or non appearance of the directors of the subscribing companies before the AO - HELD THAT - Mere non-compliance to the summons cannot be the basis for making addition.On the issue of high premium, we note that issuing of shares at a premium is a business decision taken by the board of directors and the AO cannot dictate the assessee as to at what rate the shares are to be issued. Besides there are no provisions under the Act to assess the said issue of shares at a high premium as the amendment was brought out in the Section 56(2)(viib) by Finance Act, 2012 w.e.f 01.04.2013 and accordingly is effective from AY 2013-14. So far as non-compliance of summons u/s 131 is concerned the same cannot be the ground for making addition. We note that the assesse has received the amounts through account payee cheques and source of investments were fully explained and proved. We further note that the AO has made the addition that no compliance was made to the summons issued to the investors. In our considered view non compliance to summons issued u/s 131or non appearance of the directors of the subscribing companies before the AO can not be basis for making addition as the assessee has filed all the necessary documents before the authorities below proving the identities , creditworthiness of the investors and genuineness of the transactions. The case of the assessee is squarely covered by the decisions of Hon ble Calcutta High Court in the case of Crystal Networks Pvt. Ltd. 2010 (7) TMI 841 - KOLKATA HIGH COURT , wherein it has held that where all the evidences were filed by the assessee proving the identity and creditworthiness of the loan transactions , the fact that summon issued were returned un-served or no body complied with them is of little significance to prove the genuineness of the transactions and identity and creditworthiness of the creditors. As the assessee has furnished all the evidences proving identity and creditworthiness of the investors and genuineness of the transactions but AO has not commented on these evidences filed by the assessee. Besides all the four investors have also furnished complete details/evidences before the AO which proved the identity , creditworthiness of investors and genuineness of the transactions. Under these facts and circumstances we are inclined to uphold the order of Ld. CIT(A) by dismissing the appeal of the revenue.
Issues Involved:
1. Deletion of addition of Rs. 2,71,00,000/- as unexplained cash credit under Section 68 of the Income Tax Act. Issue-wise Detailed Analysis: 1. Deletion of Addition of Rs. 2,71,00,000/- as Unexplained Cash Credit under Section 68 of the Income Tax Act: The revenue appealed against the order of the Commissioner of Income Tax (Appeals)-7, Kolkata, which deleted the addition of Rs. 2,71,00,000/- made by the Assessing Officer (AO) on account of share capital and share premium being unexplained cash credit under Section 68 of the Act. Facts and AO's Findings: - The assessee filed the return of income declaring a total income of Rs. 10,552/-. During the assessment proceedings, the AO noted that the assessee issued 1,35,500 equity shares at a face value of Rs. 10/- each at a premium of Rs. 190/-, totaling Rs. 2,71,00,000/- from four corporate entities. - The AO issued summons under Section 131 of the Act to the assessee and the investors. One director of the assessee company appeared, but other directors did not comply. - The AO concluded that the amount raised was unexplained cash credit and added it to the income of the assessee under Section 144 of the Act. CIT(A)'s Findings: - The CIT(A) noted that although the investors did not appear personally, they furnished all necessary details proving their identity, creditworthiness, and the genuineness of the transactions. - The CIT(A) found that the subscribing companies had substantial own funds and no cash was deposited in their bank accounts before issuing cheques to the assessee. - The CIT(A) concluded that the identity, creditworthiness of the shareholders, and genuineness of the transactions were proven, distinguishing the case from NRA Iron & Steel Pvt. Ltd. where extensive enquiries found some investors non-existent. Tribunal's Observations: - The Tribunal noted that the assessee provided all necessary evidence, including ITRs, PANs, balance sheets, and bank statements, to prove the identity and creditworthiness of the investors and the genuineness of the transactions. - The AO's addition was based solely on the non-compliance of summons by the investors, which the Tribunal found insufficient for making the addition. - The Tribunal emphasized that issuing shares at a premium is a business decision and cannot be dictated by the AO. The relevant amendment to Section 56(2)(viib) effective from AY 2013-14 does not apply to this case. - The Tribunal cited various judicial precedents, including Crystal Networks Pvt. Ltd. vs. CIT and CIT vs. Orchid Industries Pvt. Ltd., supporting the view that non-compliance with summons does not invalidate the identity and creditworthiness of investors if sufficient documentary evidence is provided. Conclusion: - The Tribunal upheld the CIT(A)'s order, finding no infirmity in the detailed findings which confirmed that the assessee had discharged the onus of proving the identity, creditworthiness of the investors, and genuineness of the transactions. - The appeal of the revenue was dismissed. Final Order: - The appeal of the revenue is dismissed. - The order was pronounced in the open court on 10th November 2022.
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