2018 (6) TMI 1269 - AT - Income Tax

Tribunal upholds deletion of Rs. 2.20 crores addition under Income-tax Act.

The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 2.20 crores made by the AO under Section 68 of the Income-tax Act, 1961. The ... Addition u/s. 68 - cash credit - assessee's onus to prove genuineness of the transaction - share capital and share premium - according to AO, the assessee has no track record or asset and has a nearly zero balance sheet with no visible future prospect, and wondered as to how it is asking for significantly high premium per share. - Held that:- the source of source of source is proved by the assessee in the instant case though the same is not required to be done by the assessee as per law as it stood/ applicable in this assessment year. The share applicants have confirmed the share application in response to the notice u/s 133(6) of the Act and have also confirmed the payments which are duly corroborated with their respective bank statements and all the payments are by account payee cheques. In this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee cannot be brushed aside by the AO to draw adverse view cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, we hold that an addition cannot be sustained merely based on inferences drawn by circumstance. To sum up section 68 provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. Both the nature & source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO's record. Accordingly all the three conditions as required u/s. 68 i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. No addition was warranted under Section 68. - Decided against revenue. Issues Involved:1. Deletion of addition made by the AO under Section 68 of the Income-tax Act, 1961.Issue-wise Detailed Analysis:Issue 1: Deletion of Addition Made by the AO under Section 68 of the Income-tax Act, 1961Background:The Revenue's appeal challenges the decision of the CIT(A) to delete the addition made by the AO under Section 68 of the Income-tax Act, 1961. The AO had added Rs. 2.20 crores as unexplained cash credit in the assessee company's books, questioning the genuineness and creditworthiness of the share capital and premium raised by the assessee.AO's Findings:- The AO noted that the assessee company, with no significant assets or track record, raised substantial share capital at a high premium.- Summons issued to the assessee and the directors of the investing companies were returned unserved.- The AO doubted the genuineness of the transactions and concluded that the assessee failed to explain the nature and source of the credit entries, leading to the addition under Section 68.CIT(A)'s Findings:- The CIT(A) found that the assessee had submitted substantial evidence to prove the identity, creditworthiness, and genuineness of the share subscribers.- Documents included Income Tax Returns, audited accounts, share application forms, allotment letters, bank statements, and assessment orders of the shareholders.- The CIT(A) concluded that the assessee had discharged its onus, and the addition made by the AO was deleted.Tribunal's Analysis:- The Tribunal reviewed the evidence and noted that the assessee had raised Rs. 2.20 crores by issuing 44,000 shares at a premium of Rs. 490 per share.- The Tribunal emphasized the importance of Section 68, which requires the assessee to explain the nature and source of any sum credited in its books.- The Tribunal referred to judicial precedents, including the Supreme Court's decision in CIT v. Smt. P. K. Noorjahan, which clarified that the unsatisfactoriness of the explanation does not automatically result in deeming the amount as income.Key Judicial Precedents:1. CIT v. Smt. P. K. Noorjahan: The Supreme Court held that the phrase 'may be charged' in Section 68 indicates discretion, not a mandatory requirement to treat unexplained credits as income.2. Orissa Corpn. (P) Ltd. and Rohini Builders: The courts held that the onus shifts to the Revenue to establish the lack of creditworthiness once the assessee provides details of the creditors.3. Nemi Chand Kothari: The Guahati High Court emphasized that the assessee is only required to prove the source of the credit, not the source of the source.4. S. Kamaljeet Singh: The Allahabad High Court held that providing confirmation letters, affidavits, addresses, and PAN numbers discharges the assessee's burden.5. S.K. Bothra & Sons, HUF: The Calcutta High Court reiterated that the initial onus is on the assessee, but once discharged, the burden shifts to the AO.6. Crystal Networks (P.) Ltd.: The Calcutta High Court held that failure of creditors to appear does not justify an addition if basic evidence is on record.7. Dataware Private Limited: The Calcutta High Court held that the AO of the assessee cannot assess the creditworthiness of creditors who are income tax assessees.Tribunal's Conclusion:- The Tribunal found that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the share subscribers.- The Tribunal noted that the AO did not conduct any meaningful inquiry or verification.- The Tribunal upheld the CIT(A)'s decision to delete the addition, emphasizing that the AO's addition was based on conjectures and surmises.Final Decision:- The appeal by the Revenue was dismissed, and the order of the CIT(A) was confirmed.- The Tribunal concluded that no addition was warranted under Section 68 of the Income-tax Act, 1961.Order Pronouncement:- The order was pronounced in the open court on 14.06.2018.