2023 (6) TMI 1213 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on addition under section 68 of Income Tax Act, deems assessment proceedings invalid.

Income Tax Officer Ward–12 (1) (1), Mumbai Versus M/s. Albatross Share Registry Pvt. Ltd. And (Vice-Versa)

The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 21,21,90,000 made by the AO under section 68 of the Income Tax Act, as the ... Unexplained cash credits u/s. 68 - share application money received by the assessee - Assessee failed to establish the genuineness and creditworthiness of the investing companies - CIT-A deleted the addition - HELD THAT:- Apart from making bald allegations, the Revenue did not bring any such material on record to substantiate its claim. As in respect of all the 5 companies the Revenue has conducted scrutiny assessment in the preceding years. A mere isolated transaction by one of the alleged entry operators in one of the investor companies does not taint the entire share transaction in the assessee company in the absence of any corroborative material being brought on record. Further, we find that the funds were received, inter-alia, from the sale of equity shares of some other companies by these investors or from the refund of advances for the purchase of shares. Thus,we find no merit in the aforesaid submission of the learned DR. Therefore, from the above it is evident that the assessee has also proved the source of source of the investors in the present case to satisfy the test of creditworthiness of the investor and genuineness of the transaction, against which no contrary material has been brought on record. - Decided against revenue. Issues Involved:1. Deletion of addition of Rs. 21,21,90,000/- made by AO under section 68 of the I.T. Act.2. Applicability of the judgment in the case of M/s. Lovely Exports.3. Validity of the assessment proceedings initiated under section 147 of the Act.4. Cross-objection by the assessee.Summary of Judgment:1. Deletion of Addition under Section 68:The Revenue's primary grievance was against the deletion of the addition of Rs. 21,21,90,000/- made by the AO as unexplained cash credits under section 68 of the Act. The AO observed that the 17 companies investing in the assessee had no genuineness and creditworthiness, with meager income relative to their turnover. The AO concluded that the share premium received was not justified given the assessee's financial position and treated the entire share application money as unexplained cash credit. However, the learned CIT(A) deleted the addition, noting that the assessee had provided sufficient evidence, including names, PANs, balance sheets, and other documents of the subscribers. The CIT(A) relied on the Supreme Court's decision in Lovely Exports, which held that share application money from alleged bogus shareholders cannot be regarded as undisclosed income if the names are provided to the AO.2. Applicability of Lovely Exports Judgment:The CIT(A) found that the facts of the case were covered by the Supreme Court's decision in Lovely Exports. The AO's reliance on the Vodafone International Holdings B.V. case was deemed misplaced as it pertained to transactions between related parties. The CIT(A) also clarified that the premium paid by subscribers was not as unreasonable as suggested by the AO, and the intrinsic value of shares justified the premium to some extent.3. Validity of Assessment Proceedings under Section 147:The AO initiated proceedings under section 147 based on the observation that the assessee had issued shares at a high premium, which was not justified by its financial position. The AO alleged that the financial position did not commensurate with the high share premium charged, leading to the belief that income had escaped assessment. However, during the proceedings, the assessee provided replies from all 17 companies, substantiating their identity and creditworthiness. The Tribunal found no material evidence brought by the Revenue to question the information provided by the assessee or to substantiate the claim of manipulation.4. Cross-Objection by the Assessee:As the appeal filed by the Revenue was dismissed, the cross-objection filed by the assessee became infructuous and was accordingly dismissed.Conclusion:The Tribunal found no infirmity in the order passed by the learned CIT(A) and dismissed the grounds raised by the Revenue. Consequently, both the appeal by the Revenue and the cross-objection by the assessee were dismissed.