2025 (2) TMI 1135 - AT - Income Tax

Assessee wins appeal against bogus share application addition under Section 68 with proper documentation proving subscriber identity and creditworthiness

Hilton Commodities Pvt. Ltd. Versus ITO, Ward 5 (3), Kolkata

ITAT Kolkata allowed the assessee's appeal against unexplained cash credit addition u/s 68 for bogus share application/premium. The assessee provided ... Unexplained cash credit u/s 68 - Bogus share application / share premium, received during the year - HELD THAT:- Assessee has filed the various documents / evidences of the 8 share subscribers which comprised of share application, ITRs, audited financial statements, PAN Cards, allotments receipts, bank statements of source of funds, assessment orders u/s 147/143(3) of the Act. We find that in all most all the cases the assessments were framed u/s 143(3) r.w.s 144 of the Act. We also find that the source of source were explained in some cases even though the same was not required. Needless to say that all these details / documents were before the ld. CIT (A) who has not taken a cogent view to the same. We also note that the ld. AO has also issued summons u/s 131 of the Act to the director of the assessee company, which were not complied with. Now, coming to the evidences filed before us, we have examined the evidences filed by the assessee in the form of share applications, ITRs, audited financial statements, PAN Cards, allotments receipts, bank statements of source of funds, assessment orders and find that the identity and creditworthiness of the shares and the genuineness of the transactions are adequately proved. However, the authorities below have failed to conduct any enquiry or pointed any defects the said documents. As decided in Shreen Hire Purchase P. Limited [2024 (12) TMI 1536 - CALCUTTA HIGH COURT] both the nature & source of the share capital received with premium were fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed before the ld AO. Accordingly, all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction were placed before the AO and the onus shifted to the ld AO to disprove the materials placed before him. Without doing so, the addition made by AO is based on conjectures and surmises cannot be justified. Assessee appeal allowed. ISSUES PRESENTED and CONSIDEREDThe primary issue considered in this legal judgment was whether the addition of 3,61,54,000/- as unexplained cash credit under Section 68 of the Income Tax Act, made by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)], was justified. The Tribunal also considered whether the CIT(A) improperly rejected additional evidence under Rule 46A of the Income Tax Rules.ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents:Section 68 of the Income Tax Act requires that any sum found credited in the books of an assessee for which no satisfactory explanation is provided regarding the nature and source may be charged as income. The assessee must prove the identity, genuineness, and creditworthiness of the creditors. Rule 46A of the Income Tax Rules allows for the admission of additional evidence under certain conditions.Court's interpretation and reasoning:The Tribunal found that the assessee had provided sufficient evidence to establish the identity, creditworthiness, and genuineness of the transactions with the share subscribers. The Tribunal noted that the AO and CIT(A) failed to conduct proper inquiries into the evidence provided and relied on assumptions rather than concrete findings. The Tribunal emphasized the necessity of a thorough examination by the tax authorities, as established in precedents such as CIT vs. Lovely Exports and PCIT vs. Shreen Hire Purchase Pvt Ltd.Key evidence and findings:The assessee submitted various documents, including share applications, Income Tax Returns (ITRs), audited financial statements, PAN cards, allotment receipts, and bank statements of the share subscribers. These documents were intended to demonstrate the creditworthiness and identity of the subscribers. The Tribunal noted that these documents were not adequately considered by the lower authorities.Application of law to facts:The Tribunal applied the principles from precedents which require the tax authorities to investigate the creditworthiness and identity of the subscribers thoroughly. The Tribunal found that the AO did not fulfill this obligation and instead relied on mere non-compliance with summons as a basis for the addition, without further investigation.Treatment of competing arguments:The assessee argued that the CIT(A) and AO failed to consider the evidence properly and that the rejection of additional evidence under Rule 46A was unjustified. The Revenue contended that the assessee was non-compliant and failed to demonstrate the necessary conditions under Rule 46A. However, the Tribunal found the assessee's arguments more persuasive, given the lack of inquiry by the AO.Conclusions:The Tribunal concluded that the addition under Section 68 was unwarranted as the assessee had discharged its burden of proof regarding the share subscribers. The Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition.SIGNIFICANT HOLDINGSThe Tribunal held that the tax authorities must conduct a thorough inquiry into the identity, creditworthiness, and genuineness of the transactions before making an addition under Section 68. The Tribunal quoted the Hon'ble High Court's decision in PCIT vs. Shreen Hire Purchase Pvt Ltd., emphasizing the duty of the AO to investigate the creditworthiness and identity of the subscribers.The Tribunal also established that the rejection of additional evidence under Rule 46A must be justified with sufficient reasoning, which was lacking in this case. The Tribunal's decision reinforces the principle that the burden of proof under Section 68 shifts to the tax authorities once the assessee provides prima facie evidence of the transactions.The final determination was to allow the appeal of the assessee, thereby deleting the addition made by the AO and confirmed by the CIT(A).