2023 (7) TMI 1566 - AT - Income Tax

Share capital and premium additions under Section 68 unjustified when assessee provides complete evidence and documentation

ITAT Kolkata held that addition under Section 68 for share capital and premium was unjustified. The assessee successfully demonstrated the nature and ... Addition u/s 68 - Addition of share capital and premium in the course of assessment in absence of identity of the creditors, genuineness and creditworthiness of the entire transactions - AO stated that the share applicants are not having regular means of income, poor turnover and meagre income and transactions in the bank statements indicate that there is regular rotation of funds which shows that share applicants are accommodation entry providers - HELD THAT:- As per the provisions of Section 68 of the Act, the assessee needs to explain the nature and source of credit appearing in its books of accounts to the satisfaction of the ld. AO. In this case, assessee has demonstrated successfully the nature of the alleged sum received during the year and the source of the said sum being received from the share applicants is named above along with complete evidences to explain the same. AO has not pointed out any specific error in all these documents and it is judicially well settled that where an assessee has discharged the primary onus cast upon it, it is the turn of the Assessing Officer to find out errors or shortcomings in such details filed by the assessee. But since the AO has not found any such discrepancy in the details filed by the assessee and when all the share applicants are duly assessed to tax and they have also passed through scrutiny proceedings for the very same assessment year i.e., 2012-13, there remains no reason to invoke provisions of Section 68. Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment are:1. Whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the addition of Rs. 13,56,00,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, on account of unexplained share capital and premium.2. Whether the CIT(A) erred in not remanding the matter back to the AO for further verification under Rule 46A of the Income Tax Rules.3. Whether the principles laid down by the Supreme Court in the case of Pr. CIT(Central) -1, Kolkata vs NRA Iron & Steel Pvt. Ltd. apply to the present case, particularly regarding the obligation of the assessee to prove the genuineness of the transaction, identity, and creditworthiness of the investors.ISSUE-WISE DETAILED ANALYSIS1. Deletion of Addition under Section 68 of the Act:Relevant Legal Framework and Precedents:Section 68 of the Income Tax Act requires the assessee to explain the nature and source of any credit appearing in its books of accounts. The burden of proof lies on the assessee to demonstrate the identity, creditworthiness, and genuineness of the transaction.The case of Pr. CIT(Central) -1, Kolkata vs NRA Iron & Steel Pvt. Ltd. was referred to, which emphasizes the obligation of the assessee to prove the genuineness of transactions and the identity and creditworthiness of creditors.Court's Interpretation and Reasoning:The Tribunal noted that the assessee had provided comprehensive documentation, including financial statements, bank statements, and tax returns of the share applicants, to substantiate the identity and creditworthiness of the investors and the genuineness of the transactions.The Tribunal highlighted that the AO did not find any specific discrepancies in the documents provided by the assessee. The CIT(A) found that the AO failed to conduct a proper inquiry or provide evidence that the identities of the share applicants were dubious or that the transactions were not genuine.Key Evidence and Findings:The assessee submitted various documents, such as bank statements, allotment letters, share application forms, and audited accounts, which were made available to the AO. These documents were deemed sufficient to prove the identity and creditworthiness of the share applicants and the genuineness of the transactions.Application of Law to Facts:The Tribunal applied the legal principles from previous judgments, including the decision in CIT vs. Dataware Private Ltd., which mandates the AO to verify the genuineness of transactions through proper inquiries rather than solely relying on the non-appearance of directors.Treatment of Competing Arguments:The revenue argued that the share applicants were accommodation entry providers with poor turnover and income. However, the Tribunal found that the AO did not substantiate these claims with evidence. The Tribunal also noted that the share applicants were assessed to tax and had undergone scrutiny for the same assessment year, reinforcing the genuineness of the transactions.Conclusions:The Tribunal concluded that the CIT(A) was justified in deleting the addition under Section 68 as the assessee had discharged its burden of proof, and the AO failed to provide contrary evidence.2. Non-remand to AO for Further Verification:Relevant Legal Framework and Precedents:Rule 46A of the Income Tax Rules allows the CIT(A) to admit additional evidence if the AO had sufficient opportunity to examine the evidence initially provided.Court's Interpretation and Reasoning:The Tribunal found that the CIT(A) had sufficient evidence on record to make a decision and that the AO had already been provided with all necessary documents during the assessment proceedings.Conclusions:The Tribunal held that the CIT(A) did not err in not remanding the matter back to the AO as the evidence provided was comprehensive and adequately addressed the issues raised by the AO.SIGNIFICANT HOLDINGSCore Principles Established:The Tribunal reaffirmed that the burden of proof under Section 68 lies initially with the assessee to demonstrate the identity, creditworthiness, and genuineness of the transaction. Once the assessee discharges this burden, the onus shifts to the AO to find discrepancies or inadequacies in the evidence provided.Final Determinations on Each Issue:The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 13,56,00,000/- under Section 68, concluding that the assessee had successfully demonstrated the genuineness of the transactions and the identity and creditworthiness of the share applicants.The Tribunal dismissed the revenue's appeal, affirming that the CIT(A) had acted correctly in not remanding the matter for further verification, given the comprehensive evidence already on record.