2021 (3) TMI 322 - AT - Income Tax

Tribunal deletes Rs. 1.8 crore addition under Section 68 of Income-tax Act, 1961

The Tribunal allowed the assessee's appeal, deleting the addition of Rs. 1,80,00,000/- under Section 68 of the Income-tax Act, 1961. The Tribunal found ... Addition u/s 68 - Unexplained share capital - proof of identity, creditworthiness and genuineness of the share applicants - onus to prove - HELD THAT:- The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee. If he could not do so, then evidence furnished by assessee cannot be brushed aside by the AO to draw adverse view and such an action cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the AO against the assessee, we hold that addition cannot be sustained merely based on inferences drawn by circumstance. Applying the propositions laid down in these case laws to the facts of this case, we are inclined to delete the addition confirmed by the Ld. CIT(A). Section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source of it shall be assessed as its undisclosed income. In the facts of the present case, both the nature & source of the share application and premium received by it was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed before the AO - assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified - no addition was warranted under Section 68 - Decided in favour of assessee. Issues Involved:1. Confirmation of addition under Section 68 of the Income-tax Act, 1961.2. Identity, creditworthiness, and genuineness of share capital and premium received.Issue-wise Detailed Analysis:1. Confirmation of addition under Section 68 of the Income-tax Act, 1961:The appeal concerns the confirmation of an addition of Rs. 1,80,00,000/- under Section 68 of the Income-tax Act, 1961. The Assessing Officer (AO) noted that the assessee received fresh share capital and premium totaling Rs. 2.10 crores, of which Rs. 30,00,000/- from three individuals was accepted. However, Rs. 1.80 crores from two corporate entities was not accepted due to non-compliance with the AO's request for the physical appearance of the directors. The AO concluded that the assessee failed to discharge the onus of proving the nature and source of the funds, leading to the addition. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition, leading to the present appeal.2. Identity, creditworthiness, and genuineness of share capital and premium received:The assessee argued that the identity, creditworthiness, and genuineness of the transactions were established through various documents. For M/s. Quest Financial Services Ltd., the assessee provided evidence such as the company's incorporation details, listing status, PAN, income tax returns, audited financials, and bank statements showing the transfer of Rs. 1 crore by RTGS. Similarly, for M/s. Anurag Infrastructure Ltd., the assessee provided PAN, income tax returns, audited accounts, and bank statements showing the transfer of Rs. 80 lacs. The assessee contended that the AO's adverse inference was solely based on the non-appearance of directors, which is insufficient to warrant an addition under Section 68.Legal Precedents and Analysis:The Tribunal referred to several legal precedents, emphasizing that the onus on the assessee is to establish the identity, creditworthiness, and genuineness of the transactions. Once this is done, the burden shifts to the AO to disprove the evidence provided. The Tribunal noted that the assessee had furnished adequate documentary evidence, including PAN details, bank statements, and audited financials, proving the identity and creditworthiness of the share applicants.The Tribunal highlighted that the AO did not conduct further inquiries or verification and relied merely on the non-appearance of the directors, which is insufficient. The Tribunal cited decisions where it was held that the AO should have pursued inquiries with the AO of the share applicants if there were doubts about their creditworthiness. The Tribunal also noted that the share application money was received through banking channels, and there was no evidence of cash deposits before the transfers.Conclusion:The Tribunal concluded that the assessee had discharged its onus to prove the identity, creditworthiness, and genuineness of the share applicants. The AO's addition under Section 68 was based on conjectures and surmises, without disproving the evidence provided by the assessee. Therefore, the Tribunal directed the deletion of the addition made by the AO and confirmed by the CIT(A).Final Order:The appeal of the assessee was allowed, and the addition of Rs. 1,80,00,000/- under Section 68 was deleted. The order was pronounced in the open court on 3rd March 2021.