2025 (2) TMI 1035 - AT - Income Tax

ITAT rules assessee proved investor identity and creditworthiness despite non-compliance with Section 131 summons, deletes share capital additions

ITAT Kolkata ruled in favor of the assessee regarding additions made for unexplained share capital/premium. Despite non-compliance with summons under ... Addition on account of share capital/ share premium - unexplained money - there was no compliance to the summons u/s 131 of the Act by the directors of the subscriber companies as well as by the directors of the assessee company - HELD THAT:- Assessee has furnished all the evidences proving identity and creditworthiness of the investors and genuineness of the transactions but AO has not commented on these evidences filed by the assessee. Besides the investors have also furnished complete details/evidences before the AO which proved the identity, creditworthiness of investors and genuineness of the transactions. Under these facts and circumstances and considering underlying facts in the light of ratio laid down in the decisions as discussed above, we are inclined to set aside the order of Ld. CIT(A) by directing the AO to delete the addition. Appeal of the assessee is allowed. 1. ISSUES PRESENTED and CONSIDEREDThe primary issue considered in this judgment was whether the addition of 12,93,00,000/- to the income of the assessee by the Assessing Officer (AO) on account of unexplained share capital/share premium was justified. The core legal questions involved the interpretation and application of Section 68 of the Income Tax Act, particularly concerning the identity, creditworthiness, and genuineness of the transactions related to the share capital/share premium.2. ISSUE-WISE DETAILED ANALYSISThe central issue revolves around the addition made by the AO under Section 68 of the Act, treating the share capital/share premium as unexplained money. The Tribunal examined the relevant legal framework, including the provisions of Section 68, which requires the assessee to prove the identity, creditworthiness, and genuineness of the transactions involving share capital/share premium.Relevant Legal Framework and Precedents:The Tribunal referred to several precedents, including CIT Vs. Orissa Corporation Pvt. Ltd., CIT Vs. Orchid Industries Ltd., Crystal Networks Pvt. Ltd. Vs. CIT, ITO Vs. M/s. Cygnus Developers India Pvt. Ltd., and Joy Consolidated Pvt. Ltd. Vs. ITO. These cases emphasize that the mere non-compliance with summons under Section 131 does not automatically render the transactions unexplained if the assessee has provided substantial evidence to prove the identity and creditworthiness of the investors.Court's Interpretation and Reasoning:The Tribunal noted that the assessee had furnished comprehensive evidence, including names, addresses, voter IDs, PAN cards, bank statements, and assessment orders of the share subscribers. Despite the non-compliance with summons, the Tribunal found that the AO failed to verify the evidence provided or issue notices under Section 133(6) to the share subscribers. The Tribunal emphasized that the AO's reliance solely on the non-appearance of directors was insufficient to justify the addition under Section 68.Key Evidence and Findings:The assessee provided substantial documentation, such as share application forms, allotment letters, ITRs of subscribers, bank account details, and evidence of substantial net worth of the subscribers. The Tribunal found no defects in these documents and noted that the AO did not conduct any verification or point out any discrepancies in the evidence submitted.Application of Law to Facts:The Tribunal applied the principles established in the cited precedents to the facts of the case, concluding that the addition made by the AO was not justified. The Tribunal highlighted that the AO's failure to conduct a proper inquiry into the evidence provided by the assessee was a critical factor in its decision to set aside the addition.Treatment of Competing Arguments:The Tribunal considered the arguments of both parties. The assessee argued that the addition was based on the incorrect application of Section 68, as all necessary evidence was provided. The Revenue contended that the non-compliance with summons justified the addition. The Tribunal sided with the assessee, emphasizing the importance of the evidence provided over the procedural non-compliance.Conclusions:The Tribunal concluded that the addition of 12,93,00,000/- was not sustainable due to the lack of inquiry and verification by the AO and the substantial evidence provided by the assessee proving the identity, creditworthiness, and genuineness of the transactions.3. SIGNIFICANT HOLDINGSCore Principles Established:The Tribunal reinforced the principle that the burden of proof under Section 68 lies with the assessee to establish the identity, creditworthiness, and genuineness of the transactions. However, once substantial evidence is provided, the burden shifts to the Revenue to disprove the evidence or conduct further inquiries.Final Determinations on Each Issue:The Tribunal determined that the AO's addition of the share capital/share premium as unexplained money was unjustified and directed the AO to delete the addition. The Tribunal's decision was based on the comprehensive evidence provided by the assessee and the lack of contrary evidence or inquiry by the AO.