2024 (1) TMI 56 - AT - Income Tax

Addition u/s 68 - Bogus LTCG - genuineness of source of source of share application money/premium was not proved - receipt of share capital from shell / brief case companies by the assessee company and therefore the same should be considered as bogus income - HELD THAT - Since it is explicitly proved that the amount so received by the assessee company from M/s TEVPL was already taxed in the hands of investor company, the same has an explained source, thus, it can be safely held that the impugned amount is duly explained, thus, out of the scope of provisions of section 68. Amount of share capital received by the assessee from TEVPL are tax paid funds thus in the nature of explained sources, the same can t be taxed again by bringing the same in the sweep of provisions section 68 - Thus, on account of declaration by the investor company under VSVS and payment of taxes on the disputed addition, the funds raised under the head share capital and premium by it in AY 2012-13 are explained in the hands of TEVPL, consequently, we find it appropriate to affirm the decision of Ld CIT(A) to vacate the addition received as share capital from M/s TEVPL. Share applicants money received from the second share applicant, M/s Moon Shine Mercantile Pvt. Ltd. AR furnished all the necessary documents Qua the source and also pertaining to source of source to establish that the funds received by the assessee company are duly explained, but, the same were not found satisfactory for the reason that the financials of the Share subscriber i.e., M/s Moon shine Mercantile Pvt. Ltd. and its source company i.e., M/s Rudra Mukhi Financials Pvt. Ltd. have shown merger / negative income in their ITR also audited financials of the source of source M/s Rule Mukhi Financials Pvt. Ltd. are not found furnished before us. From the records available it is evident that such information was not furnished before the revenue authorities too, thus the onus cast upon the assessee in terms of 1st proviso to section 68 was not satisfied at any stage of assessment proceedings or appellate proceedings. Thus, it can be concluded that, the Ld. AO has justifiably invoked the provisions of Section 68 and accordingly, the addition of Rs. 23 Lacs made by the AO found to be on right footing, thus, the same qualifies to be confirmed. We, Accordingly, set aside the order of Ld. CIT(A) to the extent of Rs. 23/- Lacs received from M/s Moon Shine Mercantile Pvt. Ltd. and restore the addition made by the Ld AO to that extent. Decided partly in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act.
2. Genuineness and creditworthiness of the investor companies.
3. Evaluation of the source of share application money.
4. Reliance on distinguishable case laws.
5. Consideration of the Remand Report.
6. Reasonableness of the conclusion drawn by CIT(A).

Summary:

1. Deletion of Addition under Section 68:
The primary issue was whether the CIT(A) was justified in deleting the addition of Rs. 5,07,50,000/- made by the AO under Section 68 of the Income Tax Act. The AO had added this amount, treating the share capital received by the assessee company as bogus and unexplained cash credit. The CIT(A) deleted this addition, stating that the assessee had discharged its onus regarding the identity, capacity, genuineness, and source of investment of the share subscribers.

2. Genuineness and Creditworthiness of Investor Companies:
The AO questioned the genuineness and creditworthiness of the investor companies, M/s Third Eye Vinimay Pvt. Ltd. and M/s Moonshine Mercantile Pvt. Ltd., labeling them as shell companies. The CIT(A) found that the assessee provided sufficient evidence, including bank statements, audit reports, and confirmations from the investor companies, proving the genuineness and creditworthiness of the transactions.

3. Source of Share Application Money:
The AO was not convinced with the explanations provided by the assessee regarding the source of the share application money. However, the CIT(A) accepted the additional evidence submitted by the assessee, which included bank statements and financial documents of the share applicant companies, proving the source of the share application money.

4. Reliance on Distinguishable Case Laws:
The department argued that the CIT(A) relied on case laws that were distinguishable from the facts of the present case. The CIT(A) referred to relevant judgments, such as CIT vs. Abdul Aziz and CIT vs. Pithampur Conzima (P) Ltd., to support the deletion of the addition, emphasizing that the assessee had discharged its onus.

5. Consideration of the Remand Report:
The AO's Remand Report did not object to the admission of additional evidence submitted by the assessee. The CIT(A) considered this additional evidence and concluded that the assessee had satisfactorily explained the source of the share application money.

6. Reasonableness of Conclusion by CIT(A):
The department contended that the CIT(A)'s conclusion was not reasonable. However, the tribunal found that the CIT(A) had carefully considered all the evidence and submissions, leading to a well-reasoned decision.

Final Judgment:
The tribunal partly allowed the department's appeal, confirming the addition of Rs. 23,00,000/- received from M/s Moonshine Mercantile Pvt. Ltd. as unexplained, while affirming the deletion of Rs. 4,84,50,000/- received from M/s Third Eye Vinimay Pvt. Ltd. The appeal filed by the department and the cross-objection filed by the assessee were both partly allowed.