2019 (6) TMI 158 - AT - Income Tax

Tribunal upholds deletion of Rs. 120 crores addition under Income Tax Act

Deputy Commissioner of Income Tax, Circle-10 (1), Kolkata Versus M/s. Alex Ast ral Power (P) Ltd.

The Tribunal upheld the Commissioner of Income Tax (Appeals) decision to delete the addition of Rs. 120 crores under section 68 of the Income Tax Act, ... Addition u/s 68 - share capital and share premium - unexplained cash credit - HELD THAT:- The ld AO is duty bound to confront the assessee with the enquiries made and information gathered and the principal of nature justice demands that the assessee should be allowed an opportunity to give its rebuttal and/or explain its case in light of the enquiries allegedly made by the ld AO. In the present case, we find that the ld AO merely stated that he had made 'discreet enquiries' which led to him forming conclusion that the share application monies received during the year were in nature of accommodation entries. However the nature & findings of enquiries were unknown. The ld AO never confronted the assessee with the information borne out of the so called 'discreet enquiries'. In fact from the material on record, we find that no enquiries were conducted by the ld AO under the provisions of Section 133(6) and/or 131 from the share subscribers who had actually paid the monies to the assessee. The ld AO seems to have sat back with folded hands just so as to arbitrarily reject the documents & evidences placed by the assessee at the end of the assessment proceedings with a pre-conceived notion in order to reach to pre-decided destination. The ld AO was unable to bring an iota of evidence so as to substantiate his allegation that the capital raised by the assessee was in the nature of accommodation entries or that the monies were routed back to SGJHL and its associates as alleged in the impugned order. In the course of assessment proceedings, the assessee had furnished the documentary evidences as were made available to the assessee by the share subscribing companies. The documents furnished proved the identity & creditworthiness of the shareholders. The transactions were carried through banking channels. Although the documents were submitted before the ld AO, no enquiry was conducted by the ld AO either from the Departmental records or from the bankers of the share subscribers. Hence it could be safely concluded that the adverse inference drawn by the ld AO was based on surmise & conjecture having no relation whatsoever with the facts of the case. It is well established that the assessee by producing necessary documents viz. detailed chart of inflow and outflow of funds, IT records, audited Balance Sheets, bank statement copy etc of self and all other parties involved., has sufficiently established the identity and creditworthiness of the share subscribers and the genuineness of the share transaction. As such, the addition made by the ld AO is sheerly based on surmises and wrong appreciation of the facts of the case. Hence we find that the ld CITA had rightly appreciated the contentions of the assessee, which in our considered opinion, does not require any interference. Accordingly, the grounds raised by the revenue are dismissed. Issues Involved:1. Justification of the addition made under section 68 of the Income Tax Act, 1961 towards share capital and share premium.Issue-Wise Detailed Analysis:1. Justification of the Addition Made Under Section 68 of the Income Tax Act, 1961:Background:The assessee company, engaged in the business of power and energy generation, filed its return of income for the Assessment Year (AY) 2012-13 declaring a total loss. During the relevant period, the company issued equity shares with a premium, totaling Rs. 120 crores through private placement. The Assessing Officer (AO) observed that the share subscribing companies had either no income or meager income, leading to the conclusion that these were merely paper or shell companies, thus treating the share capital and premium as bogus under section 68 of the Act.Assessee’s Defense:The assessee argued that it had set up a Solar Power Generating Plant under the Gujarat Solar Policy 2011 with an investment of Rs. 400 crores, funded through a mix of debt and equity. The equity contribution was facilitated by M/s Shree Ganesh Jewellery House (I) Ltd (SGJHL) and its subsidiaries. The assessee provided detailed documentation to substantiate the identity, creditworthiness, and genuineness of the transactions involving the share subscribing companies.AO’s Findings:The AO, despite the detailed submissions and evidence provided by the assessee, concluded that the investment was not substantiated beyond doubt. The AO added the entire share capital and share premium of Rs. 120 crores as unexplained cash credit under section 68 of the Act.CIT(A)’s Findings:The Commissioner of Income Tax (Appeals) [CIT(A)] examined the evidence and concluded that the assessee had duly proved the identity of the shareholders, creditworthiness of the shareholders, and genuineness of the transactions. Consequently, the CIT(A) deleted the addition made by the AO.Tribunal’s Analysis:The Tribunal reviewed the submissions and evidence, including various documents such as bank statements, ITR acknowledgements, and audited financial statements of the shareholder companies. The Tribunal noted the following key points:- The shareholder companies were regularly assessed to income tax, proving their identity.- The transactions were recorded in their respective books of accounts and routed through regular banking channels, proving the genuineness of the transactions.- The high net worth and creditworthiness of SGJHL and its subsidiaries were substantiated through their financial statements.The Tribunal emphasized that the AO had not conducted any specific enquiries to disprove the documentary evidence provided by the assessee. The AO’s conclusions were based on general assertions without substantial material evidence. The Tribunal also noted that the summons issued under section 131 of the Act to the director of the company were not relevant to determining the genuineness of the share capital and share premium transactions.Conclusion:The Tribunal concluded that the assessee had successfully discharged the onus of proving the identity, creditworthiness, and genuineness of the transactions. The addition made by the AO was based on surmises and conjectures without proper appreciation of the facts. The Tribunal upheld the CIT(A)’s decision to delete the addition of Rs. 120 crores under section 68 of the Act.Final Judgment:Both appeals of the revenue were dismissed, and the Tribunal pronounced the order in the open court on 20/02/2019.