2021 (3) TMI 210 - AT - Income Tax

ITAT Upholds CIT(A)'s Decision in Share Premium Income Case

The ITAT upheld the CIT(A)'s decision, ruling in favor of the assessee. It was determined that the assessee provided adequate evidence to establish the ... Addition u/s 68 - unexplained share premium - share premium component received from bogus shareholders - CIT-A deleted the addition - HELD THAT:- CIT(A) has decided the issue in detail relying some authorities of law. We are also in agreement with the view taken by the CIT(A) that once the assessee has produced the documentary evidence to establish the existence of such companies, the burden shifts to the Revenue to establish their case and that reliance on statements of 3rd parties, who have not been subjected to cross examination is not permissible. Thus, the case laws relied on by the ld. CIT-DR are not applicable to the present case, whereas the reliance placed by the ld. AR of the assessee on the decision of coordinate bench of the Tribunal in the case of M/s. Savera Towers Pvt. Ltd. [2019 (1) TMI 1328 - ITAT KOLKATA] is accepted because once the receipt of share capital has been accepted as genuine within the purview of Section 68 of the Act, there is no reason for the AO to doubt the share premium component received from the very same shareholders as bogus. - Decided against revenue. Issues Involved:1. Erroneous order of the CIT(A).2. Justification for deleting the addition of Rs. 3,18,50,000/- under Section 68 of the IT Act, 1961.3. Proving the creditworthiness of M/s. Sakambari Consultancy Pvt. Ltd.Issue-wise Detailed Analysis:1. Erroneous Order of the CIT(A):The Revenue contended that the CIT(A)'s order was erroneous both on facts and in law. The CIT(A) had deleted the addition of Rs. 3,18,50,000/- made under Section 68 of the IT Act, 1961, which was claimed as 'unexplained share premium' received from M/s. Sakambari Consultancy Pvt. Ltd. The Revenue argued that the assessee failed to prove the creditworthiness of M/s. Sakambari Consultancy Pvt. Ltd. and the genuineness of the transaction.2. Justification for Deleting the Addition:The AO observed that the assessee received a share premium of Rs. 3,18,50,000/- from M/s. Sakambari Consultancy Pvt. Ltd. through RTGS mode during the period 03.01.2013 to 24.04.2013. The AO noted that the share premium reserve of the company increased drastically and questioned the genuineness and creditworthiness of the shareholders. The AO issued a notice under Section 133(6) to M/s. Sakambari Consultancy Pvt. Ltd., but received no reply, leading to the addition of Rs. 3,18,50,000/- as unexplained income under Section 68.The CIT(A) accepted additional evidence under Rule 46A of the I.T. Rules, 1962, and called for a remand report from the AO. After considering the documents and remand report, the CIT(A) allowed the appeal, concluding that the three ingredients of Section 68 (identity, creditworthiness, and genuineness of the transaction) were established. The CIT(A) noted that M/s. Sakambari Consultancy Pvt. Ltd. was assessed to income tax, had sufficient funds, and the transactions were routed through banking channels.3. Proving the Creditworthiness:The CIT(A) found that the AO's consideration was based on suspicion rather than evidence. The AO did not provide any material to show that M/s. Sakambari Consultancy Pvt. Ltd. was a shell company. The CIT(A) observed that the AO accepted the face value of the shares but doubted the share premium without any substantial reason. The CIT(A) relied on various judicial pronouncements, including the Supreme Court's decision in CIT v. Lovely Exports Ltd., which held that if share application money is received from alleged bogus shareholders whose names are given to the AO, the department is free to reopen their individual assessments but cannot regard the amount as undisclosed income under Section 68 of the assessee company.Conclusion:The ITAT upheld the CIT(A)'s order, agreeing that the assessee had provided sufficient documentary evidence to establish the identity, creditworthiness, and genuineness of the transaction. The ITAT dismissed the Revenue's appeal, noting that the AO's addition under Section 68 was based on suspicion without concrete evidence. The ITAT emphasized that once the receipt of share capital is accepted as genuine, there is no reason to doubt the share premium component received from the same shareholders. The ITAT also referenced the decision of the coordinate bench in M/s. Savera Towers Pvt. Ltd., supporting the view that the burden shifts to the Revenue once the assessee establishes the necessary ingredients under Section 68.