2023 (11) TMI 1422 - AT - Income Tax

Addition of share capital and share premium under section 68: AO must produce independent evidence before making additions; deletion resulted

Addition of share capital and share premium under section 68 turns on the onus to prove identity, creditworthiness and genuineness of subscriptions. The ... Addition of share capital & share premium u/s 68 - onus to prove the credits - identity and creditworthiness of the subscribers and genuineness of the transactions not proved - HELD THAT:- In the case before us, the assessee provided complete details to explain the nature and source and has also explained the source of source of alleged share application money and thus has discharged the primary onus casted upon it and then the burden shifts over to the AO who has to frame an opinion as to whether he is satisfied with these details or not. Such opinion cannot be merely a general observation but the same should be supported by in-depth examination of the details filed by the assessee and to find discrepancies in such details and to also place evidence to prove the contrary. To arrive at such contrary opinion either investigation has to be carried out, any other information to be brought on record which could show that the assessee has converted its unaccounted money in the garb of share application money or it is proved that it is assessee’s own money which has been routed from the share applicants or any evidence to prove that such arrangements of funds is in the form of accommodation entry. Before us, no such material has been placed by the revenue authorities and only the evidence which the assessee has put forth before the lower authorities and before us are the basis of examining the nature and source of the alleged sum. Perusal of these details clearly indicates that except for non-appearance of the directors of the share applicant companies, no other discrepancies have been noticed by the AO in the details filed by the assessee. It has been held in plethora of judgments that merely for nonappearance of the directors of the share applicant companies, AO cannot make the addition u/s 68 of the Act. We are thus inclined to hold that the alleged sum received from share subscribing companies is a genuine transaction of making investment into the equity of NBFC registered with the Reserve Bank of India and identity and creditworthiness of the share applicants is proved beyond doubt based on the income tax returns, audited financial statements etc. Thus, the finding of CIT(A) is set aside and the addition made u/s 68 of the Act is hereby deleted. Decided in favour of assessee. Issues: Whether the addition of Rs. 6,22,00,000 made under section 68 of the Income-tax Act, 1961, by treating share capital and share premium as unexplained cash credits, is justified.Analysis: Applicable law requires the assessee to offer an explanation regarding the nature and source of amounts credited (initial burden). Where the assessee furnishes documentary evidence establishing identity of investors, confirmations, financial statements and bank evidence, the initial burden is discharged and the burden shifts to the revenue to independently examine and produce material to negativate the explanation. The revenue must point out specific discrepancies or undertake further inquiries to form a reasoned adverse opinion; mere non-appearance of directors of subscriber companies does not, by itself, justify charging the amount under section 68 if documentary evidence of identity, creditworthiness and genuineness is on record. The authorities below did not place material contradicting the documentary evidence filed by the assessee and the appellate authority's confirmation was held to be not supported by such independent inquiry.Conclusion: The addition of Rs. 6,22,00,000 under section 68 is deleted and the appeal is allowed in favour of the assessee.