2024 (5) TMI 1391 - AT - Income Tax

Assessee wins unexplained cash credit case under Section 68 after proving subscribers' creditworthiness and substantial net worth

The ITAT Kolkata ruled in favor of the assessee regarding unexplained cash credit under Section 68 involving bogus share capital/premium. The AO had ... Unexplained cash credit u/s 68 - Bogus share capital/share premium - HELD THAT:- AO issued notices u/s 133(6) of the Act to all the subscribers and were duly replied by furnishing all the details/evidences as called for. Besides the AO also issued summons u/s 131 of the Act to all the parties, which were duly replied by the share subscribers copies of which are filed in the paper book as stated above. In our opinion, the assessee has duly discharged its onus by filing evidences before the ld. AO and AO has acted on the ground that the subscribers have no creditworthiness to invest in the assessee company as they were not having sufficient income either in the current year or in the preceding years. AO ignored the fact that these subscribers were having huge networth and have made investments out of that. The ld. AR stated that where the AO has any doubt about the lenders where the assessee has furnished all the evidences before the AO, then the matter should be looked into the hands of the creditors and not the assessee when all the subscribers are duly assessed to tax and even the assessment orders u/s 143(3) of u/s 143()1) of the Act are placed on records. Thus as the share subscribers have even replied to the notices issued u/s. 133(6) of the Act and also to the summons issued u/s. 131, we are inclined to hold that assessee has proved all the ingredients of section 68 of the Act by filing all the evidences and the authorities have failed to any substantive evidence or material to the contrary .Accordingly, we set aside the order of ld. CIT(Appeals) and direct the ld. Assessing Officer to delete the addition - Decided in favour of assessee. Issues Involved:1. Confirmation of addition of Rs. 10,00,00,000/- as unexplained cash credit under section 68 of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Confirmation of addition of Rs. 10,00,00,000/- as unexplained cash credit under section 68 of the Income Tax Act, 1961:The assessee filed its return of income on 28.08.2009 declaring a total loss of Rs. 3,575/-. The case was reopened under section 147, and the assessment was completed determining a total income of Rs. 29,175/-. Subsequently, the Principal Commissioner of Income Tax (PCIT) set aside the assessment order and directed a fresh assessment, which resulted in an addition of Rs. 10,00,00,000/- as unexplained cash credit under section 68 due to non-compliance by the assessee.Upon appeal, the CIT(Appeals) dismissed the appeal ex-parte due to the assessee's non-appearance. The Tribunal restored the issue to the Assessing Officer (AO) for a fresh decision. The AO issued notices under section 142(1) and 133(6) to the shareholders, requiring detailed information. Despite receiving responses from most shareholders, three did not provide bank statements. The AO found the transactions dubious and concluded that the companies were shell companies providing accommodation entries. Consequently, the AO added the entire amount to the income of the assessee under section 68, relying on the Supreme Court decision in PCIT vs. NRA Iron & Steel Pvt. Limited (2019) 412 ITR 161(SC).The CIT(Appeals) affirmed the AO's order, holding that the assessee failed to establish the identity, creditworthiness, and genuineness of the transactions as required under section 68, referencing the Supreme Court decision in PCIT vs. NRA Iron & Steel Pvt. Limited (2019) 412 ITR 161(SC).The assessee argued that the identity and creditworthiness of the subscribers and the genuineness of the transactions were fully proved, citing various documents and evidences submitted to the AO, including ITR acknowledgments, audited financial accounts, share application forms, bank statements, and replies to notices under sections 133(6) and 131. The assessee contended that the AO should have examined the individual assessments of the share subscribers if there were doubts about their net worth.The Tribunal found that the assessee had discharged its onus by filing all necessary evidences and that the AO had not carried out any further verification. The Tribunal noted that the subscribers had responded to the notices and summons issued under sections 133(6) and 131. The Tribunal referenced decisions from the Hon'ble Calcutta High Court in PCIT vs. Sreeleathers and CIT vs. Dataware Private Ltd, which held that where the assessee has provided all evidence to establish the identity and creditworthiness of the subscribers and the genuineness of the transactions, the AO should examine the issue in the hands of the creditors and not the assessee.The Tribunal concluded that the authorities had failed to provide substantive evidence or material to the contrary. Therefore, the Tribunal set aside the order of the CIT(Appeals) and directed the AO to delete the addition of Rs. 10,00,00,000/-.Conclusion:The appeal of the assessee was allowed, and the addition of Rs. 10,00,00,000/- as unexplained cash credit under section 68 was deleted. The Tribunal emphasized the importance of examining the issue in the hands of the creditors when the assessee has provided sufficient evidence to establish the identity, creditworthiness, and genuineness of the transactions.