2025 (1) TMI 697 - AT - Income Tax

Addition u/s 68 - share capital and premium treated as unexplained cash credit - HELD THAT - The amended proviso to Section 68, requiring companies to explain the source of the source of the share applicant s funds, became applicable from 01/04/2013 and is not retrospective. The CIT(A) correctly applied the judgment in Gagandeep Infrastructure P. Ltd. 2017 (3) TMI 1263 - BOMBAY HIGH COURT and concluded that this proviso was inapplicable to A.Y. 2011- 12. We find that the CIT(A) conducted a detailed and reasoned analysis before deleting the addition u/s 68. The assessee provided sufficient evidence to prove the identity, genuineness, and creditworthiness of the investor, while the AO failed to disprove the evidence or bring any material to justify the addition. The addition made by the AO appears to be based on assumptions and lacks substantive basis. Accordingly, the appeal filed by the revenue is dismissed.

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily addresses the following legal issues:

Whether the addition of Rs. 2.75 crores as unexplained cash credit under Section 68 of the Income Tax Act, 1961, was justified.
Whether the reopening of the assessment under Section 147 of the Act was valid, considering the procedural aspects involved.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition under Section 68 of the Income Tax Act

Relevant legal framework and precedents: Section 68 of the Income Tax Act deals with unexplained cash credits. The assessee must prove the identity, genuineness, and creditworthiness of the investor.
Court's interpretation and reasoning: The CIT(A) and the Tribunal concluded that the assessee discharged its onus under Section 68 by providing adequate evidence of the investor's identity, genuineness of the transaction, and creditworthiness.
Key evidence and findings: The investor, Mr. Bhavik Parikh, appeared before the AO with supporting documents, including his PAN, address, ITR acknowledgment, and bank statements showing sufficient balance for the investment.
Application of law to facts: The CIT(A) found that the transaction was conducted through banking channels, and the frequent debits and credits in the investor's bank account were non-cash transactions, which did not imply any adverse inference.
Treatment of competing arguments: The Departmental Representative argued that the CIT(A) failed to seek a remand report, while the assessee's representative emphasized the investor's compliance and the AO's failure to record his statement. The Tribunal sided with the CIT(A)'s findings.
Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the addition under Section 68, finding that the AO's addition was based on assumptions without substantive evidence.

Issue 2: Validity of Reopening under Section 147

Relevant legal framework and precedents: Section 147 allows for the reopening of an assessment if income has escaped assessment. Proper procedural compliance, including recording reasons and obtaining approval, is crucial.
Court's interpretation and reasoning: The CIT(A) admitted the assessee's additional grounds regarding procedural lapses in reopening but deemed them academic since the substantive addition was deleted.
Key evidence and findings: The AR argued that the notice under Section 148 was issued after obtaining approval under Section 151, but without recording the reasons first, citing a procedural flaw.
Application of law to facts: The Tribunal did not adjudicate the validity of the reopening separately, as the main appeal was dismissed on the merits of the addition under Section 68.
Treatment of competing arguments: The AR relied on a co-ordinate bench decision highlighting procedural flaws in obtaining approval for reopening, but the Tribunal focused on the substantive issue.
Conclusions: The Tribunal did not address the reopening issue in detail, considering it academic after dismissing the revenue's appeal on the main issue.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The CIT(A) rightly concluded that the assessee discharged its onus under Section 68 by proving the identity, genuineness, and creditworthiness of the investor, Mr. Bhavik Parikh."
Core principles established: The assessee must provide evidence of identity, genuineness, and creditworthiness for transactions under Section 68. Procedural compliance is critical in reopening assessments under Section 147.
Final determinations on each issue: The appeal by the revenue was dismissed, and the addition under Section 68 was deleted. The cross-objection regarding the reopening was deemed academic and not adjudicated.

In conclusion, the Tribunal upheld the CIT(A)'s decision to delete the addition under Section 68, emphasizing the importance of substantive evidence and procedural compliance in tax assessments. The appeal by the revenue was dismissed, and the cross-objection was rendered academic.

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