2025 (7) TMI 1793 - AT - Income Tax

Section 68 Addition Not Justified Without Proper Evidence; Genuine Share Capital Inflow Upheld by ITAT

AVT Homes Private Limited Versus ITO, Ward 1 (1), Faridabad.

The ITAT Delhi held that addition under section 68 on share capital received from shareholders was not justified merely because the shareholders were not ... Addition u/s 68 - share capital received from the shareholders - HELD THAT:- The authorities below has proceeded to make the addition on the basis that assessee could not bring the shareholders before the authorities below. Considering the amount involved and the assessee has submitted all the relevant documentations including valuation report before the authorities, the assessee has fulfilled the obligations under the provisions of the Act and also duly valued the shares at Rs. 82.52 per share and it has issued the shares at Rs. 80/- per share. Just because the investors were not brought before the authorities below, the same cannot become non-genuine. Capital inflow of share capital cannot be treated as income unless the tax authorities make proper enquiries and bring on record the cogent material to prove that the whole transaction is merely an accommodation entry. These investors are still running companies and submitted the relevant confirmation proves the genuineness of the transaction. Therefore, direct the AO to delete the addition made u/s 68 of the Act. Decided in favour of assessee. ISSUES: Whether the addition made under section 68 of the Income-tax Act, 1961 on account of share capital and share premium received from investors can be sustained when the assessee has furnished documents to prove the identity, creditworthiness, and genuineness of the investors and transactions.Whether failure to produce the investors physically before the Assessing Officer during assessment proceedings justifies addition under section 68.Whether addition under section 68 can be upheld without rejection of books of accounts under section 145 of the Income-tax Act, 1961.Whether valuation of shares in accordance with Rule 11UA(2)(a) of the Income Tax Rules, 1962 is sufficient to justify the share premium received.Whether the Assessing Officer's reliance on doubts over the credibility and identity of investors without conducting proper enquiries or bringing on record cogent material is legally sustainable. RULINGS / HOLDINGS: The addition under section 68 was not sustainable as the assessee had furnished 'Certificate of Incorporation, MoA/AoA, auditor's report, balance sheet, profit and loss account, valuation report of shares, bank statements and bank ledger accounts' to prove the identity, creditworthiness, and genuineness of the investors and transactions.Failure to produce the investors physically before the Assessing Officer does not justify addition under section 68 when the assessee has produced corroborative documentary evidence; there is 'no legal obligation on the assessee to produce some director or other representative of the applicant-companies before the Assessing Officer.'Addition under section 68 without rejection of books of accounts under section 145 is 'bad in law.'Valuation of shares made in accordance with Rule 11UA(2)(a) of the Income Tax Rules, 1962 using the Net Asset Value Method is a valid and prescribed method, and the share premium received cannot be arbitrarily rejected.Capital inflow by way of share capital cannot be treated as income unless the tax authorities make proper enquiries and bring on record 'cogent material to prove that the whole transaction is merely an accommodation entry.'The Assessing Officer's and Commissioner of Income Tax (Appeals)'s reliance on mere doubts without material contrary to the documents furnished by the assessee is not justified. RATIONALE: The Court applied the statutory provisions of the Income-tax Act, 1961, particularly section 68 concerning unexplained cash credits, and Rule 11UA of the Income Tax Rules, 1962, relating to valuation of shares.Precedent from higher courts was considered, including the principle that once the assessee discharges the burden by furnishing evidence regarding identity, creditworthiness, and genuineness, the onus shifts to the tax authorities to disprove the same with cogent material.The Court relied on authoritative rulings that non-production of investors is not a ground for addition if documentary evidence is furnished, and that the Assessing Officer must conduct proper enquiries rather than rely on assumptions or doubts.The Court noted technical difficulties in electronic filing did not absolve the authorities from their duty to consider the documents submitted by the assessee.The valuation of shares at a premium was upheld as a commercial decision within the prerogative of the company's board of directors, supported by a valuation report compliant with Rule 11UA.The decision reflects a doctrinal emphasis on procedural fairness and evidentiary standards in tax assessments, reinforcing that additions under section 68 require more than mere suspicion or non-appearance of parties.