Assessee proves identity and creditworthiness of share subscribers under Section 68, addition deleted

ITAT Kolkata ruled in favor of the assessee regarding unexplained share capital/premium under section 68. The assessee issued equity shares to two group companies with common directors. Despite AO's concerns about the companies lacking business operations and having only loan transactions, the assessee provided comprehensive evidence including PANs, audited accounts, bank statements, and confirmation letters. The AO issued notices under section 133(6) and summons under section 131, which were duly complied with. The director's statement confirmed the transactions and availability of substantial resources. ITAT found that the assessee proved identity, creditworthiness, and genuineness of transactions, directing deletion of the addition as the companies were not shell entities providing accommodation entries.

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Issues Involved:
1. Addition of Rs. 1,39,99,920/- on account of unexplained share capital/share premium under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of Rs. 1,39,99,920/- on account of unexplained share capital/share premium under Section 68 of the Income Tax Act:

The assessee filed a return of income declaring total income at Nil. During the scrutiny, the Assessing Officer (AO) observed that the directors of the assessee company and the allottee companies were common. The AO recorded the statement of the common director, who confirmed that equity shares were allotted to two group companies at a face value of Rs. 10/- each with a premium of Rs. 80/- per share. The subscription amounts were received through banking channels and were utilized for purchasing a flat. The AO noted that the subscribing companies had only loan transactions and non-current investments, leading to doubts about the genuineness of the share subscriptions. Consequently, the AO added Rs. 1,39,99,920/- to the income of the assessee under Section 68 of the Act.

In the appellate proceedings, the Commissioner of Income Tax (Appeals) [CIT(A)] affirmed the AO's order by relying on Supreme Court decisions, which allow tax authorities to consider surrounding circumstances and human probability to determine the reality of transactions. The CIT(A) dismissed the appeal of the assessee.

The assessee's Authorized Representative (A.R) argued that all necessary details and evidence were provided to the AO, including names, addresses, PANs, audited accounts, bank statements, and confirmation letters. The AO's doubts were based on general observations without disputing the evidence provided. The A.R contended that the transactions were genuine and distinguished the case from the Supreme Court decisions relied upon by the CIT(A), arguing that those cases involved scenarios where evidence was not furnished or circumstantial evidence was needed.

The Departmental Representative (D.R) argued that merely filing documents and receiving money through banking channels does not prove the identity, creditworthiness, and genuineness required under Section 68 of the Act. The D.R relied on a Calcutta High Court decision, which held that mere filing of documents does not establish these ingredients.

The Tribunal noted that the assessee had provided all necessary evidence and that the AO's doubts were not substantiated by any defects or deficiencies in the evidence. The Tribunal found that the CIT(A) had relied on human probability without considering the facts on record. The Tribunal distinguished the case from the Calcutta High Court decision cited by the D.R, noting differences in the facts, such as compliance with summons and the nature of share premium.

The Tribunal concluded that the assessee had proved the identity, creditworthiness, and genuineness of the transactions. The Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition.

Conclusion:

The appeal of the assessee was allowed, and the addition of Rs. 1,39,99,920/- was directed to be deleted. The order was pronounced in the open court on 22nd August 2024.

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