2019 (5) TMI 2025 - AT - Income Tax

AO failed to prove holding company couldn't explain share capital ingredients, unexplained cash credit addition deleted

Income Tax Officer, Ward-1 (1), Kolkata Versus M/s Dazzle Projects Pvt. Ltd.

ITAT Kolkata held that the AO failed to establish that the holding company could not explain the three ingredients of its share capital. The assessee's ... Unexplained cash credits u/s 68 - Treating assessee’s share application / premium receipt unexplained - CIT(A) deleted addition - HELD THAT:- AO’s assessment findings nowhere indicate as to whether he had ever concluded that the said holding company had not turned up to explain all the three ingredients of its share capital. CIT(A)’s findings extracted hereinabove make it clear that the common director of these two entities had duly put in appearance before the AO who never pin-pointed any specific discrepancy in the corresponding details filed. Assessee had not credited / received the entire share application money in the relevant financial year. CIT(A) has rightly deleted the impugned unexplained cash credit addition in the nature of share application money / premium money coming from assessee’s holding company M/s Lakshmiraman Investment & Finance Ltd. in view detailed supportive evidence forming part of records. Decided against revenue. 1. ISSUES PRESENTED and CONSIDEREDThe core legal question in this case revolves around whether the sum of Rs. 4,53,00,000/- received by the appellant from a share applicant, M/s Lakshmiraman Investment & Finance Ltd., can be considered as unexplained cash credit under Section 68 of the Income Tax Act, 1961.2. ISSUE-WISE DETAILED ANALYSISIssue: Applicability of Section 68 of the Income Tax Act, 1961Relevant legal framework and precedents: Section 68 of the Income Tax Act, 1961, allows the income tax authorities to add any unexplained cash credits found in the books of an assessee as income. The assessee must prove the identity, creditworthiness of the creditor, and the genuineness of the transaction. Relevant case laws include CIT vs. Durga Prasad More and Sumati Dayal vs. CIT, which emphasize the importance of proving the genuineness and creditworthiness of transactions.Court's interpretation and reasoning: The court interpreted Section 68 to require the assessee to prove the identity, creditworthiness, and genuineness of the transaction. The CIT(A) found that the appellant had successfully demonstrated these elements through comprehensive documentation and evidence.Key evidence and findings: The appellant provided detailed documentation, including audited accounts, bank statements, and confirmations from M/s Lakshmiraman Investment & Finance Ltd. The share applicant company is a registered Non-Banking Financial Company (NBFC) with substantial net worth, and it provided all necessary documents to establish its identity and creditworthiness.Application of law to facts: The CIT(A) applied Section 68 by examining whether the appellant had discharged its burden of proof. The appellant demonstrated that the share application money was received through banking channels and was reflected in the financial statements of both companies involved.Treatment of competing arguments: The Revenue argued that the transaction was not genuine, citing a lack of evidence for the creditworthiness of the share applicant. However, the CIT(A) and the Tribunal found that the appellant had sufficiently proved the genuineness and creditworthiness of the transaction. The Tribunal noted that the appellant and the share applicant were part of the same group, further supporting the genuineness of the transaction.Conclusions: The Tribunal concluded that the appellant had adequately discharged its burden under Section 68, proving the identity, creditworthiness, and genuineness of the transaction. The addition of Rs. 4,53,00,000/- as unexplained cash credit was therefore deleted.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'The appellant has filed complete details as requisitioned through notice u/s 142(1) by the AO in course of the assessment proceedings... The evidences filed have not been found to be non-genuine or bogus or false.'Core principles established: The judgment reinforces the principle that under Section 68, the assessee must prove the identity, creditworthiness, and genuineness of the transaction. The authorities must consider all evidence provided by the assessee and cannot make additions based on mere suspicion without disproving the evidence.Final determinations on each issue: The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 4,53,00,000/- as unexplained cash credit, concluding that the appellant had sufficiently demonstrated the identity, creditworthiness, and genuineness of the share application money received from M/s Lakshmiraman Investment & Finance Ltd.In summary, the Tribunal affirmed the CIT(A)'s decision, finding that the appellant had adequately discharged its burden under Section 68 of the Income Tax Act, 1961, and the addition of Rs. 4,53,00,000/- as unexplained cash credit was not justified.