2025 (3) TMI 869 - AT - Income Tax

Unexplained share capital/ share premium u/s 68 - identity and creditworthiness of the investors and genuineness of the transactions could not be established - HELD THAT - AO has not commented on the evidences furnished by the assessee and also has not pointing out any defect or deficiency and simply made the addition by treating the share capital/ share premium as unexplained expenditure u/s 68 on the ground that there was no compliance to the summons u/s 131 as neither the directors of the assessee company nor the directors of the share subscribers company appeared before the AO and therefore the identity creditworthiness of the investors and genuineness of the transactions could not be examined. CIT (A) after discussing the credentials of each of the investors affirmed the order of AO. We note from the analysis and discussion made by CIT(A) about the subscribing companies of the appellate order that these company have sufficient available source of funds in their respective hands and even filed the proof of identity creditworthiness before the AO as well as before the CIT(A). CIT (A) has relied on the decision of Govindarajulu Mudaliar 1958 (9) TMI 3 - SUPREME COURT Durga Prasad More 1971 (8) TMI 17 - SUPREME COURT NRA Iron Steel (P.) Ltd. 2019 (3) TMI 323 - SUPREME COURT . In our opinion these decisions are distinguishable on facts. We find that the assessee has filed all the evidences before the authorities below and mere non-compliance to the summons u/s 131 cannot be ground for making an addition. We are inclined to set aside the order of CIT(A) by directing the AO to delete the addition. Appeal of the assessee is allowed.

ISSUES PRESENTED and CONSIDERED

The core legal question addressed in this judgment was whether the addition of 2,50,00,000/- to the assessee's income, made by the Assessing Officer (AO) and confirmed by the Commissioner of Income-tax (Appeals) [CIT(A)], was justified under Section 68 of the Income Tax Act concerning unexplained share capital/share premium.

ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents: The primary legal provision in question was Section 68 of the Income Tax Act, which deals with unexplained cash credits. The CIT(A) relied on several precedents, including Govindarajulu Mudaliar vs. CIT, CIT vs. Durga Prasad More, and PCIT vs. NRA Iron & Steel (P.) Ltd., to support the addition. However, the Tribunal found these precedents distinguishable based on the facts of the present case.

Court's interpretation and reasoning: The Tribunal observed that the assessee had provided comprehensive documentation to substantiate the identity, creditworthiness, and genuineness of the transactions related to the share capital and premium. This included names, addresses, PANs, income tax returns, audited accounts, bank statements, and investor confirmations. The Tribunal noted that the AO did not dispute these documents nor identified any deficiencies in them.

Key evidence and findings: The Tribunal highlighted the evidence provided by the assessee, which was not adequately contested by the AO. The AO's primary contention was the non-compliance with summons under Section 131 by the directors of the assessee and the share subscriber companies. However, the Tribunal found that mere non-compliance with summons, without more, could not justify the addition under Section 68.

Application of law to facts: The Tribunal applied the principles from the cited precedents, particularly focusing on the requirement to establish the identity, creditworthiness, and genuineness of the transactions. The Tribunal found that the assessee had sufficiently discharged its burden of proof, and the AO's reliance on the non-compliance with summons was insufficient to override the documentary evidence provided.

Treatment of competing arguments: The Tribunal considered the CIT(A)'s reliance on precedents that supported the addition but found them factually distinguishable. The Tribunal emphasized the sufficiency of the documentary evidence provided by the assessee and noted that the AO had not effectively countered this evidence.

Conclusions: The Tribunal concluded that the addition of 2,50,00,000/- was not justified, as the assessee had adequately demonstrated the legitimacy of the share capital and premium through documentary evidence. The Tribunal directed the AO to delete the addition.

SIGNIFICANT HOLDINGS

The Tribunal held that:

"The assessee has filed all the evidences before the authorities below and mere non-compliance to the summons u/s 131 of the Act cannot be ground for making an addition."

Core principles established: The Tribunal reaffirmed the principle that adequate documentary evidence of identity, creditworthiness, and genuineness of transactions is crucial in cases involving unexplained cash credits under Section 68. Non-compliance with procedural summons cannot, by itself, justify an addition if substantial evidence is provided.

Final determinations on each issue: The Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition of 2,50,00,000/-, thereby allowing the appeal of the assessee.

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