Assessee wins section 68 case as revenue failed proper enquiry despite complete documentation provided

ITAT Kolkata ruled in favor of the assessee regarding addition under section 68 for unexplained share capital/premium. The court held that when the assessee provided all required evidence, the onus shifted to revenue to conduct proper enquiry. The AO's addition based solely on non-compliance of summons to directors under section 131 was insufficient. The tribunal found no substantive grounds for the addition, emphasizing that non-production of subscribing company directors cannot justify section 68 additions when complete documentation was provided.

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Issues Involved:

1. Confirmation of addition u/s 68 of the Act by treating the share capital/share premium received as unexplained.

Summary:

Issue: Confirmation of addition u/s 68 of the Act by treating the share capital/share premium received as unexplained

The case of the assessee was selected for scrutiny to examine large share premium received during the year. Statutory notices were issued, and the assessee provided various documents including audited financial statements, ITR, PAN, ledger accounts, and bank statements. The AO issued summons u/s 131 directing the assessee to produce directors of the subscribing companies, but only the directors of the assessee company complied. The AO did not issue any summons u/s 131 or notices u/s 133(6) to individual subscribers. The AO added the entire share capital/share premium amounting to Rs. 1,98,00,000/- to the income of the assessee u/s 68 as unexplained cash credit, which was confirmed by the Ld. CIT(A) on the grounds of non-genuine transactions due to high premium.

Upon appeal, it was found that the assessee had furnished all required evidences, thus discharging the onus cast upon it. The AO did not conduct any investigation into the submitted evidences and made the addition solely based on the non-production of directors of the subscribing companies. The Tribunal held that non-production of directors cannot justify an addition u/s 68 when other evidences are available and verified. The Tribunal also referenced various decisions supporting this view, including the case of Yash Movers Pvt. Ltd. vs. ITO and PCIT vs. Naina Distributors Pvt. Ltd., which highlighted that mere non-production of directors is insufficient for such an addition if identity, creditworthiness, and genuineness are otherwise established.

Consequently, the Tribunal set aside the order of the Ld. CIT(A) and directed the AO to delete the addition, allowing the appeal of the assessee.

Order pronounced in the open court on 12th April, 2024.

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