2023 (2) TMI 453 - AT - Income Tax

Tribunal overturns tax addition, rules in favor of assessee

The Tribunal allowed the appeal, overturning the addition of INR 1,71,00,000 under section 68 of the Income Tax Act. It held that the assessee had ... Addition u/s. 68 - Bogus share capital and premium - onus to prove - assessee failed to explain the identity, creditworthiness of shareholders and genuineness of the transactions and, therefore, added back the share capital and share premium as unexplained cash credit in the hands of assessee - HELD THAT:- The assessee having furnished all the details and documents before the AO and the Ld. AO has not pointed out any discrepancy or insufficiency in the said evidences and details furnished by the assessee before him. As assessee having discharged initial burden upon him to furnish the evidences to prove the identity and creditworthiness of the share subscribers and genuineness of the transactions, the burden shifted upon the Ld. AO to examine the evidences furnished and even made independent inquiries and thereafter to state that on what account he was not satisfied with the details and evidences furnished by the assessee and confronting with the same to the assessee. In view of this, the aforesaid decision of the Hon'ble Supreme Court in the case of PCIT vs. NRA Iron and Steel Pvt. Ltd. [2019 (3) TMI 323 - SUPREME COURT] in our humble view, is not applicable to the facts and circumstances of the case in hand. Also observe that as per the proviso inserted in section 68 of the Act by Finance Act 2012 that the assessee company receiving share capital and share premium are required to prove the source of source to the satisfaction of the Ld. AO has been inserted w.e.f. 01.04.2013 and the same is not applicable in the case of assessee for assessment year 2012-13 and since the assessee has filed sufficient details to our satisfaction to prove the identity, genuineness and creditworthiness of the transaction, we are not in concurrence both the findings of the Ld. CIT(A). Thus no addition was called for u/s. 68 of the Act for the alleged sum of the share capital and premium - Decided in favour of assessee. Issues Involved:1. Addition of INR 1,71,00,000 towards share capital and share premium as unexplained cash credit under section 68 of the Income Tax Act.2. Whether the Assessing Officer (AO) provided cogent reasons for dissatisfaction with the explanation or documents provided by the assessee.3. Non-appearance of shareholders before the AO and its impact on the identity verification of such shareholders.4. Consideration of reasonable and acceptable evidence by the CIT(A).5. Retrospective application of the first proviso to section 68 of the Act.6. Source of funds of the shareholders.7. Applicability of section 56(2)(viib) of the Act for AY 2012-13.Detailed Analysis:1. Addition of INR 1,71,00,000 towards Share Capital and Share PremiumThe AO added INR 1,71,00,000 as unexplained cash credit under section 68 of the Act, doubting the creditworthiness of the investor companies and the genuineness of the transactions. The CIT(A) confirmed this addition, citing the assessee's failure to establish the genuineness of the transaction and the creditworthiness of the shareholders.2. Cogent Reasons for Dissatisfaction by the AOThe assessee argued that the AO did not provide any cogent reasons before recording dissatisfaction with the explanation or documents provided regarding the share capital and share premium. The AO relied on judgments in similar cases and issued notices to shareholders to verify their identity and creditworthiness. The AO's dissatisfaction stemmed from the non-appearance of shareholders and directors, leading to the conclusion that the transactions were not genuine.3. Non-Appearance of ShareholdersThe AO issued notices under section 131 to shareholders, requiring their personal appearance to verify identity and creditworthiness. The non-appearance of shareholders led the AO to treat the transactions as bogus. The assessee contended that all necessary details, including PANs and bank statements, were provided, proving the identity and creditworthiness of the shareholders.4. Consideration of Evidence by the CIT(A)The CIT(A) confirmed the AO's order, stating that the assessee could not establish the genuineness of the transactions and the creditworthiness of the shareholders. The assessee provided various documents, including PANs, ITRs, audited balance sheets, and bank statements, but the CIT(A) did not find these sufficient to overturn the AO's findings.5. Retrospective Application of the First Proviso to Section 68The assessee argued that the first proviso to section 68, applicable from AY 2013-14, could not be applied retrospectively to AY 2012-13. The Tribunal agreed, stating that the proviso was not applicable for the assessment year in question and supported this view with judicial precedents.6. Source of Funds of the ShareholdersThe assessee provided evidence of the source of funds of the shareholders, including bank statements and audited accounts. The Tribunal found that the assessee had successfully proved the identity and creditworthiness of the shareholders and the genuineness of the transactions, thus fulfilling the requirements under section 68.7. Applicability of Section 56(2)(viib)The assessee contended that section 56(2)(viib), requiring companies to offer excess premium received on shares to tax, was applicable from AY 2013-14 and could not be applied to AY 2012-13. The Tribunal agreed, stating that this section was not applicable for the assessment year in question.Conclusion:The Tribunal allowed the appeal, reversing the CIT(A)'s findings. It held that the assessee had provided sufficient evidence to prove the identity, creditworthiness of the shareholders, and the genuineness of the transactions. The addition of INR 1,71,00,000 under section 68 was not warranted, and the grounds of the appeal raised by the assessee were allowed. The Tribunal emphasized that the proviso to section 68 and section 56(2)(viib) were not applicable for AY 2012-13. The judgment was pronounced in the open court on 24.01.2023.