2023 (5) TMI 1040 - AT - Income Tax

Unexplained cash credit u/s 68 - share capital received from 22 shareholders - addition made on non discharge of onus in establishing identity, genuineness and creditworthiness of the share applicants - HELD THAT - All the 22 share applicants and their source firms independently responded to the notices u/s 133(6) issued to them and provided the desired information to the AO. AO brought no evidence on record to support his baseless allegations which are mere conjectural and hypothetical that share capital introduced in the Assessee Company is unaccounted income/money of the Assessee Company. There was no allegation of share capital issued at unreasonable share price or excessive share premium and there was also no allegation of any cash deposit prior to payment of share capital in the bank statements of the share applicants or the source firms. If the AO had any doubt then he could have made further inquiries and issued summons u/s 131 to the share applicants and their source firms but he did not do. Assessee Company has discharged its onus in establishing identity, genuineness and creditworthiness of the share applicants and all the amounts have been emanated from three entities namely, M/s. Shree Ram Enterprises, M/s. Shubh Laxmi Tex and M/s. Shree Amarnath Synthetics. The same has been confirmed by the shareholders as well as the Directors of all the three entities. Hence, we hold that the addition made by the AO has rightly been deleted by the ld. CIT(A). The order of the ld. CIT(A) is affirmed. Decided against revenue.

Summary

Issues involved:
The appeal by the Revenue against the order of the ld. CIT(A)-2, New Delhi dated 29.03.2016 regarding the deletion of addition of Rs. 5,20,00,000/- as unexplained cash credit u/s 68 of the Income Tax Act, 1961.

Details of the Judgment:

Issue 1: Whether the ld. CIT(A) erred in deleting the addition of Rs. 5,20,00,000/- as unexplained cash credit u/s 68 without appreciating the facts.

- The Assessee initially declared income of Rs. 95,23,700/-, which was accepted in the original assessment.
- Assessment proceedings were reinitiated due to an order passed by the ld. CIT u/s 263.
- The Assessee received share capital from 29 shareholders, providing necessary information to verify identity and creditworthiness.
- Shareholders confirmed investments with supporting documents.
- Some investments were made on behalf of funds received from specific parties.
- The AO sought information from related parties and received explanations regarding the investments.
- The ld. CIT(A) examined documents and confirmations provided by the Assessee and shareholders to establish the genuineness of the transactions.
- Detailed confirmations, bank statements, and financial statements were submitted to support the investments.
- The ld. CIT(A) verified fund movements and creditworthiness of the parties involved.
- Proprietors of source firms confirmed the investments were made on their behalf due to trading links with the Assessee.
- The Assessee and related parties cooperated with the investigation, providing necessary details.
- The ld. CIT(A) concluded that the Assessee had proven the identity, genuineness, and creditworthiness of the investments.
- The addition made by the AO was deemed baseless and conjectural, leading to its deletion by the ld. CIT(A).

Issue 2: Verification of share capital received from specific parties and the credibility of the investments.

- The ld. CIT(A) examined the financial statements of source firms and their turnover.
- The Assessee provided detailed confirmations and documents to support the investments.
- Shareholders and source firms independently responded to notices and provided required information.
- Movements of funds were cross-checked and found to be in line with explanations given.
- Lack of evidence to support AO's allegations of unaccounted income or money.
- The Assessee demonstrated that all amounts originated from known entities and were accounted for.
- Shareholders and directors confirmed the source of funds, leading to the deletion of the addition by the ld. CIT(A).

Conclusion: The ld. CIT(A) deleted the addition of Rs. 5.20 crore u/s 68 of the Act after thorough examination of documents and confirmations, affirming that the Assessee had established the legitimacy of the investments. The appeal of the Revenue was dismissed, and the order was pronounced in the open court on 27/04/2023.