2025 (3) TMI 35 - AT - Income Tax

ITAT Delhi allows share capital and share premium additions despite directors not being produced for assessment

The ITAT Delhi ruled in favor of the assessee regarding additions made on account of share capital and share premium. The AO had made additions primarily ... Bogus LTCG - addition made on account of share capital and share premium - HELD THAT:- As correctly decided by CIT(A) AO has himself mentioned in the order that details like copy of accounts, income tax particulars, bank statement and balance sheet of all the companies from whom share capital and share premium was received were filed during the course of assessment proceedings. The AO has primarily made additions for the reason that the directors of the said companies were not produced although opportunity was provided. AO has cited a number of case laws to support his contention. The AO has, however, not mentioned any of the alleged evidence found or seized during the course of search in the case of S.K. Jain even though he had re-opened the assessment for that reason. In absence of the same the AO's case is primarily built on the non-appearance of the directors of the investing companies. Details regarding share capital and share premium received were furnished during the course of the original assessment which was completed u/s 143(3) of the Act, on 15.12.2009, accepting the sources of share capital introduced. Even during the course of reassessment proceedings, the appellant filed all the necessary details to discharge its onus to prove genuineness of share capital and share premium received. In the instant case the said onus enjoined upon the appellant company stands discharged in as much as the identity and creditworthiness of the investors stands proved and the genuineness of the transactions stands evidenced by the confirmations and the bank accounts which have been filed before the AO, which has been acknowledged in the assessment order. Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal were:1. Whether the CIT(A) erred in deleting the addition of Rs. 2,00,00,000/- made on account of share capital and share premium, which the Assessing Officer (AO) claimed was a bogus transaction failing the tests of identity, creditworthiness, and genuineness.2. Whether the CIT(A) erred in deleting the addition of Rs. 7,00,000/- made on account of unexplained expenditure under Section 69 of the Income Tax Act, 1961, which the AO alleged was spent from undisclosed sources in the guise of share application money.ISSUE-WISE DETAILED ANALYSIS1. Deletion of Addition on Account of Share Capital and Premium (Rs. 2,00,00,000/-)Relevant Legal Framework and Precedents:The addition was made under Section 68 of the Income Tax Act, which deals with unexplained cash credits. The AO is required to establish the identity, creditworthiness, and genuineness of the transactions.Court's Interpretation and Reasoning:The CIT(A) found that the AO had reopened the assessment based on information from the Investigation Wing without independent application of mind. The CIT(A) noted that the reopening was beyond four years from the end of the relevant assessment year, and there was no failure on the part of the assessee to disclose material facts, as required by the proviso to Section 147.Key Evidence and Findings:The CIT(A) observed that the assessee had provided all necessary documents, including bank statements and identity proofs of the share applicants, during the original assessment. The AO's reliance on the non-appearance of directors of the investing companies was insufficient to justify the addition.Application of Law to Facts:The CIT(A) concluded that the assessee had discharged its onus to prove the genuineness of the share capital and premium received. The Tribunal upheld this finding, noting the absence of any contrary material provided by the Department.Treatment of Competing Arguments:The Tribunal considered the Department's argument that the AO had rightly made the addition due to the failure of the assessee to substantiate the transactions. However, the Tribunal found that the CIT(A)'s detailed consideration of the evidence was compelling.Conclusions:The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 2,00,00,000/-, finding no error in the CIT(A)'s assessment of the evidence and legal principles.2. Deletion of Addition on Account of Unexplained Expenditure (Rs. 7,00,000/-)Relevant Legal Framework and Precedents:The addition was made under Section 69C of the Income Tax Act, which pertains to unexplained expenditure.Court's Interpretation and Reasoning:The CIT(A) noted that the addition was based on the presumption that accommodation entry operators charge a commission of 3.5%. However, there was no evidence of such a transaction or payment of commission.Key Evidence and Findings:The CIT(A) found that the AO had not brought any evidence on record to suggest that the assessee had paid a commission for obtaining accommodation entries.Application of Law to Facts:The Tribunal agreed with the CIT(A) that the addition was based on mere presumption without supporting evidence. Since the primary addition of Rs. 2,00,00,000/- was deleted, the consequential addition of Rs. 7,00,000/- was also unsustainable.Treatment of Competing Arguments:The Department did not provide any material evidence to counter the CIT(A)'s findings during the hearing.Conclusions:The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 7,00,000/-, finding the reasoning and evidence assessment by the CIT(A) to be sound.SIGNIFICANT HOLDINGSCore Principles Established:The Tribunal emphasized the necessity for the AO to independently apply their mind when reopening assessments based on third-party information. The requirement to substantiate claims with evidence rather than presumption was reinforced.Final Determinations on Each Issue:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order to delete both additions on account of share capital and premium, and unexplained expenditure.