Tribunal remands appeal for fresh adjudication, stresses verification of share capital transactions.

ITO 14 (1) (1), Mumbai Versus Abacus Real Estate Pvt. Ltd.

ITO 14 (1) (1), Mumbai Versus Abacus Real Estate Pvt. Ltd. - TMI Issues Involved:
1. Deletion of Rs. 35 crores from total income treating the premium received on preferential shares as unexplained cash credit under section 68 of the Income Tax Act.
2. Allowance of the assessee’s appeal on the grounds that the invested company had its own funds to make investments in the assessee-company.

Issue-Wise Detailed Analysis:

1. Deletion of Rs. 35 crores from total income treating the premium received on preferential shares as unexplained cash credit under section 68 of the Income Tax Act:

The Assessing Officer (AO) observed that the assessee received a share premium of Rs. 35 crores from M/s Prime Properties Pvt. Ltd. The AO scrutinized the bank statements of M/s Prime Properties Pvt. Ltd. and noticed that credits were followed by equivalent debits, resulting in a meager balance at the end of the year. The AO concluded that the genuineness of the transaction was not proved and made an addition of Rs. 35 crores under section 68 of the Act.

The CIT(A) found that there was no dispute about the identity of M/s Prime Properties Pvt. Ltd., which had sufficient funds for making the investment. The payments were made through normal banking channels and were reflected in the balance sheets of both companies. The CIT(A) concluded that the assessee had discharged its onus of establishing the identity, creditworthiness, and genuineness of the transaction as required under section 68 of the Act. The CIT(A) referred to the decision of the Delhi High Court in CIT v. Value Capital Services P. Ltd., which held that unless the Department could show that the amount received towards share capital emanated from the assessee-company's coffers, no addition could be made under section 68.

2. Allowance of the assessee’s appeal on the grounds that the invested company had its own funds to make investments in the assessee-company:

The CIT(A) observed that M/s Prime Properties Pvt. Ltd. had shown sufficient funds under 'Other Liabilities' in its balance sheet, which justified the investment in the assessee-company. The CIT(A) also noted that the investment was reflected in the balance sheets of both companies and that necessary documents, such as Form 2 and Board’s resolution for the addition to share capital, were on record.

Tribunal's Analysis and Decision:

The Tribunal reviewed the case laws cited by both parties. The Revenue relied on several decisions, including PCIT v. NRA Iron & Steel (P.) Ltd., which emphasized the need for careful scrutiny of transactions involving share capital/premium to prevent the conversion of unaccounted money. The Tribunal noted that the AO must investigate the creditworthiness of the creditor/subscriber, verify their identity, and ascertain the genuineness of the transaction.

The Tribunal found that the pattern of deposits and withdrawals in the bank accounts of both M/s Prime Properties Pvt. Ltd. and the assessee-company raised doubts about the genuineness of the transactions. The Tribunal distinguished the present case from the decision in Aditya Birla Telecom Ltd., where the investment was made by a globally recognized investment group with necessary approvals from SEBI and the Ministry of Finance.

The Tribunal concluded that the genuineness of the transactions required further verification. Citing the Supreme Court's decision in NRA Iron & Steel (P.) Ltd., the Tribunal held that the assessee had a legal obligation to prove the receipt of share capital/premium to the AO's satisfaction. The Tribunal set aside the CIT(A)'s order and restored the matter to the AO for fresh adjudication, directing the assessee to file relevant documents/evidence.

Conclusion:

The appeal was allowed for statistical purposes, and the matter was remanded to the AO for a fresh order after giving the assessee a reasonable opportunity to present relevant documents and evidence. The Tribunal emphasized the need for a thorough investigation into the genuineness of the transactions, in line with the principles laid down by the Supreme Court.