2023 (3) TMI 1617 - AT - Income Tax

Unexplained cash credits under Section 68 not sustained where assessee proved identity, creditworthiness and genuineness of funds.

Whether additions under Section 68 were sustainable turned on the assessee's discharge of the initial onus to prove (i) identity of investor, (ii) ... Addition u/s 68 - treating share application money/share premium and related commission as unexplained income - Onus to prove identity, creditworthiness and genuineness - taxation of investor's source bars treating same funds as undisclosed income of assessee Addition u/s 68 - Onus under section 68 to prove identity, creditworthiness and genuineness - HELD THAT: - The Tribunal found that the assessee produced ITRs, audited financial statements, bank statements, confirmations and other documents establishing that funds were received as interest bearing unsecured loans from the investor and that interest and TDS were recorded. Assessee had provided all the required information regarding the creditor /investor /shareholder, who has already disclosed its income under VSVS and had paid the required taxes thus no further action can be taken against the assessee. On the totality of the material, and having regard to the factual matrix including the investor's filings, the Tribunal accepted that the assessee had discharged the onus and that the AO/CIT(A) had not recorded adequate reasons to disbelieve the documentary evidence. Consequently, the additions under section 68 could not be sustained in the hands of the assessee. [Paras 18, 23, 24] Final Conclusion: The Tribunal allowed the appeals for AY 2013-2014 and AY 2014-2015, deleted the additions made under section 68 (and related commission), and set aside the orders of the AO and CIT(A). Issues: Whether additions made under Section 68 of the Income-tax Act, 1961 treating share application money/share premium and related commission as unexplained income for assessment years 2013-14 and 2014-15 are sustainable.Analysis: The issue centres on whether the assessee discharged the onus to establish (i) identity of the investor, (ii) creditworthiness of the investor, and (iii) genuineness of the transactions which formed the basis for additions under Section 68 of the Income-tax Act, 1961. The assessee produced income-tax returns, audited financial statements, bank statements, share certificates and copies of compliance under the Vivad se Vishwas Scheme, 2020 showing that the investor had earlier disclosed and paid tax on sources of funds. The factual matrix showed that amounts were received as interest-bearing unsecured loans during the relevant years and were later converted into equity in a subsequent year, interest was paid and TDS was deducted. The material relied upon by the assessing officer included statements recorded in survey proceedings; such statements and the absence of direct interrogation of the purported lenders were examined in light of authorities requiring recorded reasons if an assessing officer rejects documentary evidence and the settled legal position that mere banking transactions do not automatically establish illegitimacy. Applying these principles and reviewing the documentary evidence and chronology of payments, the Tribunal found the assessee had furnished requisite information to discharge the initial onus and that the assessing officer had not established cogent reasons to disbelieve the documentary evidence or to sustain the additions.Conclusion: The additions made under Section 68 of the Income-tax Act, 1961 for assessment years 2013-14 and 2014-15 (share application money/share premium and commission) are deleted; both appeals are allowed in favour of the assessee.