2023 (6) TMI 1453 - AT - Income Tax

Unexplained share application money additions deleted under Section 68 when proper documentation proves transaction authenticity

ITAT Kolkata allowed the appeal, deleting additions under section 68 for unexplained share application money and share premium. The tribunal found that ... Addition u/s 68 - share application/share premium being unexplained - HELD THAT:- We observe from the orders of authorities below that none of the authorities have commented of the evidences filed by the assessee proving the sources of investments with the aid of necessary documents as stated above. The case of the assessee finds support from decision of Orissa Corporation Pvt. Ltd. [1986 (3) TMI 3 - SUPREME COURT] which is on the issue of share premium. Similar ratio has been laid down in the case of CIT Vs Orchid Industries (P) Ltd [2017 (7) TMI 613 - BOMBAY HIGH COURT] by holding that provisions of section 68 of the Act can not be invoked for the reasons that the person has not appeared before the AO where the assessee had produced on records documents to establish genuineness of the parties such as PAN ,financial and bank statements showing share application money. The case of the assessee is also squarely covered by the decisions of Crystal Networks Pvt. Ltd [2010 (7) TMI 841 - KOLKATA HIGH COURT] wherein it has held that where all the evidences were filed by the assessee proving the identity and creditworthiness of the loan transactions , the fact that summon issued were returned un-served or no body complied with them is of little significance to prove the genuineness of the transactions and identity and creditworthiness of the creditors. In the instant case before us also, the assessee has furnished all the evidences proving identity and creditworthiness of the investors and genuineness of the transactions but AO has not commented on these evidences filed by the assessee. We also note that the assessee has received unsecured loans from three parties who were either directors or their relatives qua whom filed necessary evidences as in the case of share capital and share premium. We are inclined to set aside the order of ld. CIT(A) and direct to delete the addition - Decided in favour of assessee. Issues:Confirmation of addition of Rs. 2,70,30,857/- by CIT(A) under section 68 of the Act on account of unexplained share application/share premium.Analysis:The appeal was against the order passed by the Commissioner of Income-tax (Appeals) confirming the addition of Rs. 2,70,30,857/- by the Assessing Officer under section 68 of the Income Tax Act, 1961, regarding unexplained share application/share premium. The assessee had issued equity shares at a premium and taken unsecured loans from directors and their relatives. The AO added the amount as unexplained cash credit. The CIT(A) dismissed the appeal with minimal findings, lacking reasons and justification.During the assessment proceeding, the assessee provided complete details regarding share subscribers and lenders, including PANs, audited financial statements, bank statements, and confirmations. The AO issued summons to directors of the assessee company but did not issue notices or summons to the share subscribers/lenders. The assessee submitted extensive documentation for both corporate and individual subscribers, demonstrating the source of funds. Assessment orders of some subscribers were accepted under section 143(3) of the Act.The Tribunal noted that the authorities did not adequately consider the evidence provided by the assessee regarding the sources of investments. Citing legal precedents, including the Supreme Court and High Court decisions, it was emphasized that the burden of proof was discharged by the assessee through the documents submitted. The Tribunal found that the order of the CIT(A) was not sustainable and set it aside, directing the deletion of the addition.The Tribunal referred to a decision by the Allahabad High Court and an ITAT Kolkata bench ruling, supporting the view that non-production of directors of investor companies for examination by the AO does not invalidate the identity of the share applicants. The Tribunal upheld the order of the CIT(A) based on the evidence provided by the assessee regarding the identity and creditworthiness of the investors.In conclusion, the Tribunal allowed the appeal of the assessee, directing the deletion of the addition of Rs. 2,70,30,857/- made by the AO. The decision was based on the assessee's submission of comprehensive evidence and the failure of the authorities to adequately consider the same.Order pronounced in the open court on 12.06.2023.