2018 (11) TMI 1835 - AT - Income Tax

Tax Tribunal upholds assessee's proof of share subscriber authenticity, dismisses revenue appeal under Section 68.

The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision that the assessee had adequately demonstrated the identity, creditworthiness, ... Addition u/s 68 - unexplained source of funds for the investment - HELD THAT:- AO has simply disbelieved the evidence filed by the assessee. He has not conducted any verification, let alone investigation, before coming to the conclusion that the confirmations and evidence filed by the Directors cannot be admitted as evidence. As the share applicants are the Directors of the assessee Company and have confirmed the transactions and have also filed their source of funds for the investment. When statement of final accounts were filed giving sources of funds for making the investment, the Assessing Officer has not given any reason as to why he is not able to accept the same. If at all the creditworthiness of the directors is not proved, then an addition can be made only in their hands and not in the hands of the company as held by the Hon’ble A.P. High Court in the case of Lanco Industries Ltd [1999 (12) TMI 45 - ANDHRA PRADESH HIGH COURT] No contrary evidence to controvert the evidence produced by the assessee, is brought on record. Simply because the directors/shareholders did not present themselves before the Assessing Officer, an addition u/s 68 of the Act, cannot be made. In view of the above circumstances, we cannot uphold this addition made u/s 68 of the Act. Under these circumstances, we delete the addition and allow this appeal of the assessee. Issues Involved:1. Addition under Section 68 of the Income Tax Act, 1961.2. Identity, creditworthiness, and genuineness of transactions.3. Compliance with summons under Section 131 and notices under Section 133(6) of the Act.Issue-wise Detailed Analysis:1. Addition under Section 68 of the Income Tax Act, 1961:The revenue's appeal was against the order of the Learned Commissioner of Income Tax (Appeals)-4, Kolkata, which had granted relief to the assessee by deleting the addition of Rs. 1,10,52,450/- made under Section 68 of the Act. The Assessing Officer (AO) had made this addition on account of share capital subscribed during the year, suspecting the genuineness of the transactions.2. Identity, Creditworthiness, and Genuineness of Transactions:The assessee, a company engaged in construction and development, had issued 5,500 shares at a face value of Rs. 10/- at a premium of Rs. 190/- per share to six subscriber companies. The AO had questioned the creditworthiness and genuineness of these transactions. However, the assessee furnished comprehensive particulars, including share application forms, allotment letters, bank statements, income tax returns, certificates of incorporation, PAN details, and proofs of regular tax assessment of the subscriber companies. The Tribunal found that each subscriber company had substantial own funds, significantly exceeding the amount invested in the assessee's shares. For instance, M/s. Alavel Finvest Pvt. Ltd. had net owned funds of Rs. 29,68,04,516/- against an investment of Rs. 20,00,000/- in the assessee's shares. Similar findings were noted for other subscriber companies. The Tribunal upheld the CIT(A)'s conclusion that the assessee had established the identity, creditworthiness, and genuineness of the transactions.3. Compliance with Summons under Section 131 and Notices under Section 133(6) of the Act:The AO had issued summons under Section 131 to the Director of the assessee company, requiring the production of directors of the subscriber companies, which was not complied with. However, the Tribunal noted that the AO had issued notices under Section 133(6) to the subscriber companies, and all had duly complied by furnishing the required documents. The Tribunal held that the AO's failure to issue personal summons to the directors of the subscriber companies and instead requiring the assessee to enforce their attendance was uncalled for and unjustified. The Tribunal emphasized that non-appearance in response to summons under Section 131 does not invalidate the evidence provided in response to notices under Section 133(6).Supporting Case Laws:The Tribunal referred to several case laws supporting its decision, including:- Commissioner of Income Tax vs. Orissa Corporation Pvt. Ltd. (159 ITR 78 SC): Held that an addition cannot be made simply because a person has not appeared in compliance with notice under Section 131 when all other requirements of notices under Section 133(6) have been complied with.- Commissioner of Income Tax v. Orchid Industries Pvt. Ltd. (397 ITR 136): Reiterated that non-appearance in response to summons under Section 131 does not justify an addition under Section 68 if other documentary evidence is provided.- ITO vs. M/s. Adventa Stock Management Ltd. (ITA No. 1647/Kol/2016): Similar circumstances where the Tribunal upheld the genuineness of transactions and dismissed the revenue's appeal.Conclusion:The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order that the assessee had successfully proved the identity, creditworthiness, and genuineness of the share subscribers. The addition under Section 68 was not justified merely due to non-compliance with summons under Section 131, especially when comprehensive documentary evidence was provided in response to notices under Section 133(6).