2018 (4) TMI 564 - AT - Income Tax

Tribunal upholds CIT(A) decision, assessee proves share application genuineness. Revenue appeal dismissed.

The Deputy Commissioner of Income tax Versus Gyscoal Alloys Ltd.

The Tribunal affirmed the CIT(A)'s findings, ruling that the assessee proved the identity, genuineness, and creditworthiness of the share ... Addition of share application/premium u/s 68 - identity, genuineness and creditworthiness of the investor entity Held that:- Assessee has been able to prove all three components of identity, genuineness and creditworthiness of impugned share application/premium amount of ₹ 9,99,99,900/- to have come from its group company M/s. General Capital and Holding Company Pvt. Ltd. Coupled with this, we must also observe that it has successfully produced its common Director Mr. Shah (supra) before AO alongwith all necessary details and confirmation despite the fact that such a personal appearance is required as per Section 68 (First proviso) inserted by the Finance Act, 2012 applicable w.e.f. 01.04.2013 only whereas we are dealing with assessment year 2010-11. We thus affirm the CIT(A)’s findings under challenge. - Decided against revenue Issues Involved:1. Addition under Section 68 of the Income Tax Act regarding share capital/share premium.2. Identity, genuineness, and creditworthiness of the share applicant.3. Relevance and applicability of case laws cited by the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)].Detailed Analysis:1. Addition under Section 68 of the Income Tax Act:The primary issue in this case was the addition of Rs. 9,99,99,900/- under Section 68 of the Income Tax Act, made by the Assessing Officer (AO). The AO questioned the share capital/share premium received from M/s. General Capital and Holding Company Pvt. Ltd., suspecting it to be an accommodation entry and a sham transaction. The AO's suspicion arose from the belief that there was a pattern of cash deposits followed by withdrawals to pay for the shares.2. Identity, Genuineness, and Creditworthiness of the Share Applicant:The CIT(A) reversed the AO's addition by considering the following factors:- The assessee provided comprehensive details, including the Certificate of Incorporation, IPO details, annual accounts, and bank statements.- The Principal Officer of the investing company appeared before the AO and provided original bank statements, confirming that there were no cash deposits.- The investing company provided confirmations, audited accounts, income tax returns, and PAN card copies.- The investment was received through account payee cheques, and the investing company still held the shares.- Both the assessee and the investing company were managed by the same group of persons, and the identity of the investor was not in dispute.The CIT(A) emphasized that the assessee had discharged its onus by proving the identity, genuineness, and creditworthiness of the share applicant. The CIT(A) also noted that the AO's observations about cash deposits were factually incorrect.3. Relevance and Applicability of Case Laws:The CIT(A) distinguished the case from several judgments cited by the AO, noting that the facts were different:- In cases like CIT vs. Nova Promoters & Finlease (P) Ltd. and CIT vs. N.R. Portfolio (P) Ltd., the share applicants did not respond to summons or failed to provide corroborative evidence. In contrast, the investing company in the present case provided all necessary details and confirmations.- The CIT(A) cited Gujarat High Court judgments, such as CIT vs. Shree Rama Multi Tech Ltd., which held that if the assessee provides sufficient proof of share application money, no addition can be made under Section 68.The Revenue's appeal argued that the investment was a sham transaction and highlighted the lack of employees and the residential premises of the investing company. However, the Tribunal found no material evidence to support the AO's claims of cash deposits followed by cheque issuance.The Tribunal concluded that the assessee had satisfactorily proven the identity, genuineness, and creditworthiness of the share application/premium amount. The Tribunal also noted that the CIT(A)'s directions to pass the relevant information to the AO of the share applicant company protected the Revenue's interest.Conclusion:The Tribunal affirmed the CIT(A)'s findings, holding that the assessee had successfully demonstrated the identity, genuineness, and creditworthiness of the share application/premium amounting to Rs. 9,99,99,900/-. The Revenue's appeal was dismissed, and the addition under Section 68 was deleted.Final Judgment:The Revenue’s appeal is dismissed.[Pronounced in the open Court on this the 06th day of April, 2018]