Appeal allowed by ITAT, deleting addition under Section 68 of Income Tax Act. Assessee proved source of funds.

The ITAT allowed the appeal of the assessee, deleting the addition made by the AO under Section 68 of the Income Tax Act. The ITAT found that the assessee had adequately proven the source of the funds from the sale of shares held as investments, and the addition was based on suspicion rather than concrete evidence. The judgment was pronounced on 24.10.2018.

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Issues Involved:
1. Whether the addition of an amount received from the sale of shares held as investments can be made under Section 68 of the Income Tax Act, 1961.

Detailed Analysis:

1. Background and Appeal:
The assessee, a company, appealed against the order of the Commissioner of Income Tax-(A)-13, dated 18.09.2017, relating to the assessment year 2012-13. The primary issue was whether an addition could be made for amounts received from the sale of shares held as investments.

2. Sale of Shares and AO’s Summons:
The assessee sold equity shares to three companies: M/s Grade Suppliers Pvt. Ltd, M/s Kritimaan Tie-up Pvt. Ltd, and Jhankar Dealers Pvt. Ltd. The Assessing Officer (AO) issued summons under Section 131 of the Income Tax Act to the purchasers, who provided details in response. However, the AO concluded that the credits were unexplained and made an addition under Section 68 of the Act since none of the directors appeared before him.

3. First Appellate Authority’s Decision:
The First Appellate Authority upheld the AO’s order. The assessee then appealed to the ITAT.

4. ITAT’s Findings:
After reviewing the case, the ITAT held that the assessee had sold shares purchased in earlier years and disclosed them as assets/investments in the balance sheet. The purchasers provided various documents, including income tax returns, certificates of incorporation, audited accounts, share sale invoices, and bank account details. The AO’s insistence on the personal appearance of the directors was deemed unnecessary, and the addition under Section 68 was found to be against the law laid down by the Hon’ble Supreme Court in CIT vs Orissa Corporation (P) Ltd (1986) 159 ITR 78 (SC).

5. Legal Precedents and Case Laws:
The ITAT referenced several cases, including:
- ITO vs M/s Srishti Fincap Pvt. Ltd.: Highlighted that the AO acted on information without verifying previous returns and that the assessee had already disclosed the purchase of shares.
- ITO vs Jatin Investment Pvt. Ltd.: Emphasized that the assessee’s investments were shown in the balance sheet, and the sale proceeds were accounted for, thus Section 68 was not applicable.
- CIT vs Vishal Holding and Capital Pvt. Ltd.: Supported the view that when shares are shown as investments and subsequently sold, Section 68 does not apply.

6. Conclusion:
The ITAT concluded that the assessee had discharged its burden of proof, and there was no contrary evidence from the AO to disprove the claim. The addition was made on suspicion and surmises, which was not justified. Therefore, the ITAT deleted the addition made under Section 68 of the Act.

7. Final Judgment:
The appeal of the assessee was allowed, and the addition made by the AO under Section 68 was deleted. The order was pronounced on 24.10.2018.

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