Tribunal overturns CIT(A), directs deletion of Rs. 5 crores addition under Section 68.

The Tribunal allowed the appeal filed by the assessee, setting aside the CIT(A)'s order and directing the AO to delete the addition of Rs. 5 crores under Section 68 of the Income Tax Act, 1961. The Tribunal found the transaction genuine, considering the assessee's substantial evidence and the group's overall potential influencing investment decisions. The AO failed to prove the transaction was sham, leading to the favorable outcome for the assessee.

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Issues Involved:
1. Validity of the appellate order.
2. Confirmation of addition of Rs. 5,00,00,000/- under Section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the appellate order:
The issue raised in ground No. 1 was not pressed during the course of the hearing and therefore dismissed as not pressed.

2. Confirmation of addition of Rs. 5,00,00,000/- under Section 68 of the Income Tax Act, 1961:
The primary issue in this appeal concerns the confirmation of the addition of Rs. 5 crores by the CIT(A) as made by the AO under Section 68 of the Income Tax Act, 1961. This amount pertains to share capital and share premium received by the assessee-company for allotment of 10% non-cumulative preference shares to M/s. Janitor Distributors Pvt. Ltd.

Facts of the Case:
- The assessee-company filed its return of income declaring a loss of Rs. 3,946/-.
- The AO noticed that the assessee had allotted 10% non-cumulative preference shares of face value Rs. 100/- each at a premium of Rs. 100/- each to M/s. Janitor Distributors Pvt. Ltd., receiving a total amount of Rs. 5 crores.
- The AO found this transaction suspicious and called upon the assessee to prove its genuineness.
- The assessee provided various documents, including the return of income, balance sheet, and profit & loss account of M/s. Janitor Distributors Pvt. Ltd.
- Despite these submissions, the AO deemed the transaction sham and treated the amount as unexplained cash credit under Section 68, assessing the total income at Rs. 5 crores.

CIT(A)'s Findings:
- The CIT(A) dismissed the appeal of the assessee, agreeing with the AO that the transaction was doubtful and a "colourable device" to avoid tax.
- The CIT(A) relied on the totality of facts, surrounding circumstances, and human probability, referencing judgments from the Hon. Supreme Court.

Assessee's Arguments:
- The assessee argued that the order of the AO was based on mere suspicion and conjectures.
- The assessee provided extensive documentation to prove the genuineness, creditworthiness, and identity of the transaction.
- It was emphasized that the investment decisions were based on the group's overall potential and financial stability, not just the individual company's performance.
- The assessee highlighted that similar transactions in group companies were accepted by the Income Tax Department.

Revenue's Arguments:
- The learned D.R. supported the orders of the authorities below, arguing that the transaction was a structured device to generate money from other entities.
- It was pointed out that both the assessee and the investor company were not carrying on any business, making the transaction suspicious.
- The learned D.R. relied on various judicial decisions to support the argument that the transaction was not genuine.

Tribunal's Findings:
- The Tribunal noted that the assessee belongs to a reputed group with significant business activities and financial stability.
- The assessee provided substantial evidence to prove the genuineness of the transaction.
- The Tribunal found merit in the argument that the investment decisions were influenced by the group's overall potential and not just the individual company's performance.
- The Tribunal distinguished the decisions relied upon by the Revenue, noting that the facts of the present case were different.
- The Tribunal concluded that the AO did not bring any evidence to prove the transaction was sham and non-genuine.

Conclusion:
The Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition of Rs. 5 crores under Section 68. The appeal filed by the assessee was allowed.

Order Pronounced:
The order was pronounced in the open court on 8th February 2018.

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