2023 (2) TMI 508 - AT - Income Tax

Addition u/s 68 - bogus share capital and share premium - HELD THAT - Considering the facts on record and the provisions of section 68 of the Act, no addition is called for in respect of amount received by the assessee during the preceding year which has been duly accounted and reported in its audited balance sheet - We direct the ld. AO accordingly to delete the addition so made in this respect. In respect of the balance amount received during the impugned year, we note that Ld. AO without even going through and discussing the details submitted by the subscriber companies, insisted for personal appearance to prove the identity, creditworthiness of the subscribers and the genuineness of the transactions. To our mind, Ld. AO could have taken an adverse view only if he could point out the discrepancies or insufficiency in the evidence and details furnished in his office and also as to get further investigation was needed by him by way of recording of statement of the directors of the assessee and the subscriber companies. Hon'ble Bombay High court in the case of PCIT v. Paradise Inland Shipping Pvt. Ltd. 2017 (11) TMI 1554 - BOMBAY HIGH COURT held that once the assessee has produced documentary evidence to establish the existence of the subscriber companies, the burden would shift on the revenue to establish their case. Going by the records placed by the assessee of all the share subscribing companies, it can be safely held that the assessee has discharged his initial burden and the burden shifted on the AO to enquire further into the matter which he failed to do so. It is also noted that all the investing companies have sufficient own funds available with them to make investment in the assessee. Assessee has discharged its onus to prove the identity and creditworthiness of the share subscribing companies and the genuineness of the transactions received during the impugned year - direct the ld. AO to delete the addition made towards share capital and share premium u/s. 68 - Decided in favour of assessee.

Summary

Issues Involved:
1. Sustaining the addition of Rs. 2,30,00,000/- under section 68 of the Income-tax Act, 1961.
2. Alleged lack of application of mind by the Assessing Officer (AO) in the assessment order.
3. Addition of Rs. 110 lacs received in the preceding year under section 68 in the year under appeal.

Detailed Analysis:

Issue 1: Sustaining the Addition of Rs. 2,30,00,000/- under Section 68 of the Act
The primary issue concerns the addition of Rs. 2,30,00,000/- consisting of Rs. 46,00,000/- as share capital and Rs. 1,84,00,000/- as share premium under section 68 of the Income-tax Act, 1961. The assessee introduced Rs. 230 lacs in the form of share capital and premium, issuing 4,60,000 shares at a face value of Rs. 10/- each with a premium of Rs. 40/- each to eighteen different share subscribing companies. The AO directed the assessee to produce the directors of the assessee and the allottee companies along with relevant documents. However, the AO made the addition under section 68 by applying the test of human probability, which was confirmed by the CIT(A).

Issue 2: Alleged Lack of Application of Mind by the AO
The assessee argued that the assessment order lacked application of mind, as the AO made the addition without finding any fault or deficiency in the exhaustive material placed on record. The AO's decision was based on the non-production of the directors of the assessee and the share subscribers, despite the submission of all relevant details and documents.

Issue 3: Addition of Rs. 110 lacs Received in the Preceding Year under Section 68 in the Year Under Appeal
The assessee contended that out of Rs. 230 lacs, Rs. 118.50 lacs were received in the preceding year as share application money, which was reported in the audited balance sheet as "share application money pending allotment." The AO wrongly treated this amount as unexplained cash credit received during the year under appeal. The Tribunal noted that Rs. 118.50 lacs were received in the preceding year and were duly accounted for, thus no addition was called for in respect of this amount.

Tribunal's Findings:
1. For the amount of Rs. 118.50 lacs received in the preceding year:
- The Tribunal directed the AO to delete the addition as the amount was received in the preceding year and duly accounted for in the audited balance sheet.

2. For the balance amount of Rs. 121.50 lacs received during the impugned year:
- The Tribunal noted that the AO insisted on personal appearance to prove the identity, creditworthiness, and genuineness of the transactions without pointing out any discrepancies in the documents submitted.
- The Tribunal referred to various judicial precedents, emphasizing that the burden shifts to the revenue once the assessee has produced documentary evidence to establish the existence and creditworthiness of the subscriber companies.
- The Tribunal found that the assessee had discharged its onus by providing sufficient documentary evidence, including share application forms, allotment letters, bank statements, and audited financial statements of the subscriber companies.

Conclusion:
The Tribunal concluded that the assessee had adequately proved the identity and creditworthiness of the share subscribing companies and the genuineness of the transactions. Therefore, it directed the AO to delete the addition of Rs. 230 lacs made under section 68 of the Act. The appeal of the assessee was allowed.

Order pronounced in the open court on 13 January 2023.