2023 (10) TMI 1452 - AT - Income Tax

Assessee wins appeal against unexplained share capital addition under section 68 after proving subscriber identity and creditworthiness

M/s. Delta Dealers Private Limited Versus ITO, Ward-8 (2), Kolkata.

M/s. Delta Dealers Private Limited Versus ITO, Ward-8 (2), Kolkata. - TMI Issues Involved:1. Legality of the addition of share capital and share premium as unexplained income under Section 68 of the Income Tax Act.2. Validity of the assessment order and the order of the Commissioner of Income Tax (Appeals) [CIT(A)].3. Compliance with the principles of natural justice and the requirement for a reasoned order.4. Burden of proof regarding the identity, genuineness, and creditworthiness of share subscribers.5. The role of independent inquiry by the Assessing Officer (AO) in verifying the transactions.Detailed Analysis:1. Legality of the Addition under Section 68:The primary issue was the addition of Rs. 15,51,00,000/- made by the Assessing Officer (AO) as unexplained income under Section 68 of the Income Tax Act, which was upheld by the CIT(A). The AO based this addition on the non-appearance of directors of the assessee and subscriber companies, despite the submission of documentary evidence. The Tribunal observed that the AO failed to consider the evidence submitted by the assessee, which included confirmations from subscriber companies, their income tax returns, and bank statements. The Tribunal emphasized that the mere non-appearance of directors cannot justify the addition under Section 68 if the assessee has provided sufficient documentary evidence to establish the identity, genuineness, and creditworthiness of the transactions.2. Validity of the Assessment Order and CIT(A)'s Order:The Tribunal found the orders of the AO and CIT(A) to be non-speaking, cryptic, and unreasoned. It noted that both authorities failed to engage with the facts and contentions presented by the assessee. The Tribunal highlighted that the CIT(A) did not examine the evidence and merely upheld the AO's decision without providing a reasoned analysis. This lack of reasoning and engagement with the evidence rendered the orders unsustainable in law.3. Compliance with Principles of Natural Justice:The Tribunal underscored the necessity for a quasi-judicial authority to provide reasons for its conclusions, as established in the case of Kranti Associates Pvt. Ltd. vs. Masood Ahmed Khan. The absence of a reasoned order from the AO and CIT(A) contravened the principles of natural justice, which require that decisions be based on an objective consideration of relevant factors.4. Burden of Proof:The Tribunal reiterated that the initial burden of proof lies with the assessee to establish the identity, genuineness, and creditworthiness of the share subscribers. Once the assessee discharges this burden by providing documentary evidence, the onus shifts to the Revenue to prove otherwise. In this case, the Tribunal found that the assessee had discharged its burden by submitting comprehensive evidence, including confirmations from subscriber companies, their financial statements, and bank details. The Revenue failed to counter this evidence or conduct further inquiries.5. Role of Independent Inquiry by the AO:The Tribunal criticized the AO for not conducting an independent inquiry to verify the genuineness of the transactions, as mandated by the Supreme Court in the case of PCIT vs. NRA Iron & Steel Pvt. Ltd. The AO's reliance on the non-appearance of directors, without pointing out any discrepancies in the submitted documents, was deemed insufficient to justify the addition. The Tribunal noted that the AO should have investigated any discrepancies or insufficiencies in the evidence provided by the assessee, which he failed to do.Conclusion:The Tribunal concluded that the assessee had adequately discharged its burden to prove the identity, genuineness, and creditworthiness of the share subscribers. The AO and CIT(A) failed to provide a reasoned order or conduct necessary inquiries. Consequently, the Tribunal set aside the orders of the AO and CIT(A) and deleted the addition made under Section 68 of the Act. The appeal of the assessee was allowed.