Share premium addition deleted when applicants respond to notices and provide documentary evidence under section 68

The ITAT Kolkata allowed the assessee's appeal and deleted the addition made under section 68 regarding unexplained share premium. The tribunal held that where share applicants responded to notices under section 133(6) and the assessee filed documentary evidence explaining the nature and source of share premium, the AO failed to identify any discrepancies. Following precedent in Mahalakshmi Vinimay case, the tribunal ruled that adverse inference could only be drawn if the AO pointed out specific discrepancies or insufficiencies in evidence. The burden shifted to revenue to establish their case once documentary evidence of subscriber companies' existence was produced.

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Issues Involved:
1. Arbitrary, illegal, and bad in law order by the CIT(A).
2. Addition of Rs. 72,00,000 under section 68 of the IT Act, 1961.
3. Assessee's right to add, alter, or amend grounds of appeal.

Summary:

Issue 1: Arbitrary, Illegal, and Bad in Law Order by the CIT(A)
The assessee contested that the order of the CIT(A) was arbitrary, illegal, and bad in law. The Tribunal noted that the CIT(A) had upheld the addition made by the Assessing Officer (AO) without appropriately considering the evidence provided by the assessee.

Issue 2: Addition of Rs. 72,00,000 under Section 68 of the IT Act, 1961
The primary grievance was the addition of Rs. 72,00,000 on account of share premium under section 68 of the Act. The AO had accepted the share capital of Rs. 2,00,000 but doubted the share premium of Rs. 72,00,000 due to insufficient compliance by the assessee in proving the identity, creditworthiness, and genuineness of the share applicants. The CIT(A) upheld this addition, referencing the Supreme Court judgment in Principal Commissioner of Income Tax (Central-1) vs. NRA Iron & Steel Pvt. Ltd.

The Tribunal, however, found that the AO's acceptance of share capital while rejecting the share premium from the same applicants was contradictory. It was observed that the assessee had provided sufficient evidence, including responses to notices under section 133(6), financial statements, and bank statements, to prove the genuineness of the transactions and the creditworthiness of the share applicants. The Tribunal cited previous decisions, including M/s. Advent Commodities Pvt. Ltd. vs. ITO and ITO vs. M/s. Gateway Enclave Pvt. Ltd., which supported the assessee's position that once the identity and creditworthiness of share applicants are established, the share premium should not be doubted.

The Tribunal also noted that the AO did not point out any discrepancies in the evidence provided by the assessee and failed to conduct an independent inquiry. The Tribunal concluded that the addition under section 68 was not justified and deleted the addition of Rs. 72,00,000.

Issue 3: Assessee's Right to Add, Alter, or Amend Grounds of Appeal
The Tribunal did not specifically address this issue as the primary contention was resolved in favor of the assessee.

Conclusion:
The Tribunal allowed the appeal of the assessee, reversing the CIT(A)'s order and deleting the addition of Rs. 72,00,000 under section 68 of the IT Act, 1961. The decision emphasized the need for the AO to conduct a thorough inquiry and not contradict themselves by accepting share capital while rejecting the share premium from the same applicants. The Tribunal's order was pronounced on 11th July, 2023.

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