2022 (11) TMI 586 - AT - Income Tax

Tribunal upholds deletion of Rs. 11,07,50,000 addition by IT Commissioner. Revenue appeal dismissed.

The Tribunal upheld the Commissioner of Income Tax (Appeals) decision to delete the addition of Rs. 11,07,50,000 made by the Assessing Officer, as the ... Unexplained share capital and share premium - HELD THAT:- We observe from the records before us and also from the appellate order that the assessee has furnished all the details/evidences qua the share applicants furnishing the names and addresses, PAN cards, share application forms, share allotment advices, confirmations, audited financial statements and also proof of source of source by furnishing necessary documents of the third parties. We note that even the notices issued u/s 133(6) of the Act were duly complied with by the share applicant and they furnished all the evidences as called for by the AO which proved identity and creditworthiness of the investors and genuineness of the transactions as the source of source was also proved. Even the summons issued to the director of the assessee company was complied with by the personal appearance of Shri Arvind Agarwal before the AO. The basis of making addition completely devoid of merit and substance. Not only the assessee has proved the identity and creditworthiness of the investors and genuineness of the transactions by furnishing all the evidences which unequivocally proved all these three ingredients of Section 68 of the Act. Besides the issue of shares at a high premium is a management decision taken by the Board and there is no bar in the instant assessment year to issue shares at a high premium. We are also aware of the fact that the Clause (viib) to Section 56(2) of the Act was brought by Finance Act, 2012. CIT(A) has discussed the individual details of each investor and recorded a finding that how the three ingredients of section 68 of the Act were satisfied on the strength of evidences filed by the assessee as well as by the investors. Considering these facts, we are of the view that the assessee has proved identity and creditworthiness of the shareholders and also the genuineness of the transactions. Therefore, we do not find any infirmity in the order of Ld. CIT(A) who has passed a very reasoned order by following various decisions as discussed therein and therefore we uphold the same by dismissing the appeal of the revenue. Issues Involved:1. Deletion of addition of Rs. 11,07,50,000/- on account of unexplained share capital and share premium.Detailed Analysis:Condonation Petition:The judgment notes that no condonation petition was filed.Facts and Procedural History:The assessee filed a return of income on 18.07.2009 declaring a total income of Rs. 8,734/-. The case was reopened under Section 148 of the Income Tax Act, 1961, due to income escaping assessment. During reassessment, the Assessing Officer (AO) called for details to substantiate the share application money received. The AO made an independent inquiry from shareholders, which was responded to with requisite documents. The reassessment was completed, assessing the income at Rs. 31,207/-.PCIT's Revisionary Jurisdiction:The Principal Commissioner of Income Tax (PCIT) issued a show-cause notice under Section 263, stating that the AO failed to conduct requisite inquiries. The PCIT revised the assessment order, directing the AO to conduct necessary inquiries.Set Aside Assessment Proceedings:In compliance, the AO issued notices under Section 142(1) and 133(6) to verify the share subscription money. The AO was not convinced by the explanations and made an addition of Rs. 11,07,50,000/- under Section 68, deeming the share premium as bogus and unexplained.Appeal to CIT(A):The assessee challenged the addition before the Commissioner of Income Tax (Appeals) [CIT(A)], who directed the AO to delete the addition after examining the evidence and submissions. The CIT(A) found that the AO had conducted inquiries in accordance with the PCIT's directions and verified the identity, creditworthiness, and genuineness of the transactions.CIT(A)'s Observations:1. Identity of Shareholders: The CIT(A) noted that all 15 share subscribers were corporate entities with substantial net worth, and their identities were established through PAN and Income Tax acknowledgments.2. Creditworthiness: The subscribers provided audited financial statements, bank statements, and explanations for the source of funds. The investments were made through banking channels without prior cash deposits.3. Genuineness of Transactions: The CIT(A) observed that the AO did not bring any substantive material to disprove the documentary evidence. The AO's assertion that the director failed to produce the shareholders was not sufficient to question the genuineness.Judicial Precedents:The CIT(A) referred to several judicial decisions, including those of the jurisdictional High Court and other High Courts, which consistently held that once the identity and creditworthiness of the subscribers and the genuineness of the transactions are proved, no addition under Section 68 is warranted. The CIT(A) also distinguished the case from the Supreme Court's decision in Principal CIT vs. NRA Iron & Steel (P) Ltd, noting that the facts were different as the shareholders in the present case were existent and provided necessary documents.High Premium Justification:The CIT(A) held that the adequacy of the share premium is not a relevant consideration under Section 68. The decision to issue shares at a high premium is a commercial decision and does not affect the genuineness of the transactions.Conclusion:The CIT(A) concluded that the assessee had discharged its onus of proving the identity, creditworthiness, and genuineness of the share subscribers. Therefore, the addition of Rs. 11,07,50,000/- made by the AO was deleted.Tribunal's Decision:The Tribunal upheld the CIT(A)'s order, agreeing that the assessee had provided sufficient evidence to substantiate the share capital and share premium received. The Tribunal dismissed the revenue's appeal, affirming that the CIT(A) had passed a reasoned order based on judicial precedents and the evidence on record.Final Order:The appeal of the revenue was dismissed, and the order was pronounced in the open court on 10th November 2022.