2024 (7) TMI 957 - AT - Income Tax

Addition u/s 68 - bogus share capital and share premium - unexplained cash credit as the assessee could not establish the identity, creditworthiness and genuineness of the share subscribers and even did not produce the director of the investor companies in spite of summon issue u/s 131 - HELD THAT - Hon ble Delhi High Court in the case of CIT vs. Steller Investment Pvt. Ltd. 1991 (4) TMI 100 - DELHI HIGH COURT has held that even if it be assumed that the subscribers to the increased share capital were not genuine, even then under no circumstances could the amount of share capital be regarded as undisclosed income of the assessee. The Hon ble Court admitted that there were some bogus share holders and the money may have been provided by some other persons. But it would have been sensible to reopen the assessments of the person alleged to have advanced the money and how the amount in respect of increase in share capital could be assessed in the hands of the assessee company itself was beyond understanding. CIT(A) has given a finding that the submissions given by the assessee during the appellate proceedings pointed towards the elaborate documentations filed by the assessee in relation to application of shares, allotment of shares, share certificates, payments by cheques and necessary papers/documents filed before the Registrar of the company. CIT(A) also noted that the assessee has provided a copies of bank statements, contract notes, delivery instructions to the broker that all the transactions were genuine however in his considered view of the matter, it is precisely this elaborate paperwork strengthen the issue long term capital gain which clearly has been schemed, preplanned and executed with malafide intelligence and precision. We find that the CIT(A) has completely gone out of track while recording the findings as in the present case issue involved is raising share capital / share premium by issuing equity shares and not of earning of long term capital gain by selling equity shares. There was a complete non-application of mind to the facts/evidences filed by the assessee as well as share subscribers as the CIT(A) has wrongly recorded a finding that the assessee has wrongly derived benefit by way of long term capital gain on sale of equity shares which is totally wrong and based on conjectures, surmises and day dreaming . We are not in a position to sustain the findings given by the Ld. CIT(A). Accordingly, the order of Ld. CIT(A) is set aside and AO is directed to delete the addition. Assessee appeal allowed.

Summary

Issues:
Confirmation of addition of Rs. 1,96,50,000/- by the Ld. CIT(A) as made by the AO u/s 68 of the Act in respect of share capital and share premium.

Analysis:
1. The assessee appealed against the order of the Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi for the AY 2012-13, specifically challenging the addition of Rs. 1,96,50,000/- under section 68 of the Act related to share capital and share premium.
2. The AO treated the share capital and share premium as unexplained cash credit due to the assessee's failure to establish the identity, creditworthiness, and genuineness of the share subscribers. Despite issuing notices and summonses, the assessee could not produce the directors of the subscribing companies for examination.
3. The Ld. CIT(A) affirmed the AO's order, stating that the assessee did not provide the required details, overlooking the evidences submitted by the assessee and the subscribing companies.
4. The assessee argued that all necessary documents proving the identity, creditworthiness, and genuineness of the share subscribers were submitted, including ITRs, certificates of incorporation, ROC records, and bank statements. The AO's conclusion was based on common directors and addresses of the subscribing companies, branding them as shell companies without substantial evidence.
5. The Ld. CIT(A) and AO failed to acknowledge the evidence presented, leading to an erroneous decision. The appellate tribunal noted that the onus was on the assessee, which was discharged through substantial documentation, and directed the AO to delete the addition.
6. The Ld. CIT(A) wrongly associated the issue with long-term capital gains, deviating from the actual matter of share capital and premium. The tribunal found a lack of application of mind in the CIT(A)'s decision and overturned the order, directing the AO to delete the addition.
7. The tribunal emphasized that even if some subscribers were not genuine, it does not justify treating the share capital as undisclosed income. The decision was based on facts and evidence, highlighting the improper reasoning of the lower authorities.

In conclusion, the appellate tribunal allowed the appeal, setting aside the Ld. CIT(A)'s order and directing the AO to delete the addition of Rs. 1,96,50,000/- related to share capital and share premium for the AY 2012-13.