2018 (12) TMI 1316 - AT - Income Tax

Tribunal upholds deletion of Section 68 addition, emphasizing share premium as capital receipt

DCIT CIR 3 (3) (1), Mumbai Versus M/s. Rockwood Hotels & Resorts Ltd.

The Tribunal upheld the CIT(A)'s decision to delete the addition under Section 68 of the IT Act, as the assessee successfully proved the identity, ... Addition u/s.68 - unexplained cash credit - identity, genuineness and credit worthiness of share applicants - Held that:- CIT(A) recorded a finding to the effect that assessee had discharged its onus to prove the transaction and that AO has not brought any contrary documentary evidence on record to dispute the transaction and involvement of unaccounted money belonging to the assessee, CIT(A) also recorded a finding to the effect that on perusal of bank statement of share applicants, it is observed that there are no cash deposit corresponding to cheques issued towards share application money. Even in remand report, the AO had not brought any contrary material to disprove the transaction and had not found any fault in the documents furnished by the assessee, accordingly it was held by CIT(A) that assessee had reasonably discharged its onus to prove the identity, creditworthiness and genuineness of transaction. In view of the documentary evidence furnished which included PAN details, registration certificate, share application forms, board resolution of share applicants, affidavit and confirmation of the share applicants, IT returns, balance sheet and bank statements of share applicants and assessment orders u/s 143(3) in respect of two share applicants. We found that CIT(A) has dealt with the issue threadbare in respect of each share applicant and after applying various judicial pronouncements to the facts of the case and the documents placed on record reached to the conclusion that all the three ingredients of Section 68 i.e., identity, genuineness and credit worthiness of share applicants are duly complied with, accordingly, no addition is warranted. The findings so recorded by CIT(A) are as per material on record which do not require any interference on our part. - Decided against revenue Issues Involved:1. Addition under Section 68 of the IT Act regarding share application money.2. Disallowance under Section 41(1) of the IT Act.3. Addition of capital expenditures pending for capitalization.Issue-Wise Detailed Analysis:1. Addition under Section 68 of the IT Act regarding share application money:The assessing officer (AO) made an addition of Rs. 31,34,98,035 under Section 68 of the IT Act, questioning the genuineness of the share application money received from various parties. The AO argued that mere filing of PAN was insufficient to prove the identity of the share applicants and doubted their creditworthiness and the genuineness of the transactions. The AO noted that the share subscribers did not have their own profit-making apparatus and merely rotated money through banking channels. The AO also questioned the hefty premium of Rs. 190 per share, considering it unjustified given the company's financial track record.The CIT(A), however, deleted the addition after considering the documents provided by the assessee, which included PAN cards, CIN Master Data (ROC), certificates of incorporation, share application forms, board resolutions, confirmation of accounts, IT returns, balance sheets, bank statements, and assessment orders under Section 143(3) for some share applicants. The CIT(A) observed that the AO had not disputed the correctness of these documents and had not issued notices under Section 133(6) to verify the source of funds. The CIT(A) concluded that the assessee had discharged its onus to prove the identity, creditworthiness, and genuineness of the transactions.The Tribunal upheld the CIT(A)'s decision, noting that the AO had not brought any contrary material to disprove the transactions and had not found any fault in the documents furnished by the assessee. The Tribunal also referred to various judicial pronouncements, including the cases of Lovely Exports Pvt. Ltd., Green Infra Ltd., and Gagandeep Infrastructure Pvt. Ltd., which supported the view that share premium is a capital receipt and not taxable as income.2. Disallowance under Section 41(1) of the IT Act:The AO made a disallowance of Rs. 90,18,520 under Section 41(1) of the IT Act, considering it as an advance or balance of creditors of capital nature. The CIT(A) did not specifically address this issue in the order, focusing primarily on the addition under Section 68.3. Addition of capital expenditures pending for capitalization:The AO added Rs. 4,83,44,824 as capital expenditures pending for capitalization. The CIT(A) did not specifically address this issue in the order, focusing primarily on the addition under Section 68.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition under Section 68. The Tribunal found that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the share applicants and that the AO had not brought any contrary material to disprove the transactions. The Tribunal also noted that share premium is a capital receipt and not taxable as income. The issues of disallowance under Section 41(1) and addition of capital expenditures pending for capitalization were not specifically addressed in the Tribunal's order.