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Facts
The assessee received Rs. 60,00,000/- as share capital and premium from M/s. Karda Traders Pvt. Ltd. The Assessing Officer added this amount under Section 68, questioning the identity, creditworthiness, and genuineness of the transaction, citing issues like the investor company's low income, small bank balance, and an Inspector's report indicating it did not exist at the given address. The CIT(A) upheld this addition.
Held
The Tribunal found that the assessee had sufficiently proved the investor company's existence, identity, and creditworthiness through MCA records, income tax returns, balance sheets showing substantial shareholder funds, and bank statements reflecting trading activities. Since the investment was received via banking channels and used as capital, the addition made under Section 68 was deleted.
Key Issues
Whether the addition of share capital and premium under Section 68 of the Income Tax Act was justified when the assessee provided evidence of the investor's identity, creditworthiness, and genuineness of the transaction.
Sections Cited
143(1), 56(2)(viib), 143(2), 142(1), 133(6), 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘A’: NEW DELHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’: NEW DELHI BEFORE SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER and SHRI VIMAL KUMAR, JUDICIAL MEMBER (Assessment Year: 2016-17) Lakshay Buildwell P. Ltd., vs. ITO, Ward 2, 131, First Floor, Parijat Complex, Hisar. Hisar – 125 001 (Haryana). (PAN : AABCL5528J) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri K. Sampath, Advocate Shri Raj Kumar, Advocate REVENUE BY : Shri Anshul, Sr. DR Date of Hearing : 04.06.2024 Date of Order : 30.08.2024 ORDER PER S.RIFAUR RAHMAN,AM:
The assessee has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals), Delhi [“Ld. CIT(A)”, for short]/National Faceless Appeal Centre (NFAC) dated 30.07.2021 for the Assessment Year 2016-17.
Brief facts of the case are, assessee filed its return of income declaring taxable income at Rs.13,930/- on 27.10.2016, the same was processed under section 143 (1) of the Income-tax Act, 1961 (for short ‘the Act’). Subsequently, the case was selected for limited scrutiny through CASS for the reason that there are large share premium received during the year (applicability of section 56(2)(viib) of the Act). The statutory notices u/s 143(2)/142(1) alongwith questionnaire were issued on the assessee. In response, ld. AR for the assessee submitted relevant information through electronical mode.
During assessment proceedings, the Assessing Officer observed that assessee is engaged in the business of trading in Khal. On perusal of the balance sheet, he noticed that assessee has issued/allotted 12,000 shares (face value of Rs.10 and share premium of Rs.490/- per share) amounting to Rs.60,00,000/-. On confrontation with the assessee, it was submitted that assessee has issued/allotted 12,000 shares to M/s. Karda Traders Pvt. Ltd., Amar Colony, Lajpat Nagar, New Delhi amounting to Rs.60,00,000/-. A copy of the bank statement, copy of MOA & AOA along with ITR, balance sheet and profit & loss account of M/s. Karda Traders Pvt. Ltd. was submitted. The Assessing Officer perused the bank statement and observed that the abovesaid company has no sufficient amount to purchase the shares from the company and further observed that the amount was credited in the same day or in a day before debiting abovesaid amount to the assessee. The same pattern of deposits are immediate withdrawal was observed for the period of entire 10 days for which the bank statement of M/s. Karda Traders Pvt. Ltd. furnished by the assessee, being a very small balance at the end of each day. Further, he observed that the abovesaid company had filed its return of income declaring a very little amount of Rs.5,43,060/-. An Inspector was deputed to obtain information of the abovesaid company under section 133(6) of the Act. and as per the Inspector’s report, the abovesaid company does not exist at the address given by the assessee. A notice u/s 142(1) of the Act dated 16.11.2018 was issued to the assessee and was asked to explain abovesaid transactions. In response, assessee filed a written reply stating that the company exists at the given address. In support of the above submission, assessee submitted a copy of assessment order for assessment year 2012-13. With regard to low income, assessee has submitted and relied upon the decision of Hon’ble High Court of Rajasthan in the case of CIT vs. ARL Infratech Ltd.. He further submitted that there is no direct or indirect relation with the assessee company and the share applicants. Therefore, it will not fall under the provisions of Section 68 of the Act. It was submitted that creditworthiness has to be verified from the financial statements.
After considering the submissions of the assessee, Assessing Officer rejected the same and observed that from the bank statement of the investor company, it is clear that the company has no sufficient fund for investment of shares to the extent of Rs.60,00,000/- and further they have declared very low income of Rs.5,43,060/- against huge investment made in the assessee company. With the above observation, he disallowed the share application/ allotment of shares to the extent of Rs.60,00,000/- under section 68 of the Act with the observation that assessee had failed to prove the identity and creditworthiness of the shareholders.
Aggrieved with the above order, assessee filed appeal before the ld. CIT (A) and filed detailed submissions which are reproduced by ld. CIT (A) in para 3 to 4 of his order. After considering the submissions of the assessee, ld. CIT(A) sustained the additions made by the Assessing Officer relying on several decisions.
Aggrieved with the above order, assessee is in appeal before us raising following ground :- “
That on the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in confirming the additions made u/s 68 of the Act by the Assessing Officer in a sum of Rs.60,00,000/- on account of share capital money received treating the same as unexplained.”
7. At the time of hearing, ld. AR for the assessee submitted that Assessing Officer has added the share capital and share premium u/s 68 of the Act and merely relied on the Inspector’s report and neglected the various documents submitted by the assessee in order to prove the identity, creditworthiness and genuineness of the transaction and also to establish the source of source. He submitted that the Assessing Officer has made the addition on the basis that assessee has failed to prove identity and creditworthiness of shareholder. He submitted that assessee has submitted bank details, bank statement and also assessment order for assessment year 2012-13 to prove the identity of the investor. Further, he submitted that as per the record of Ministry of Corporate Affairs, the abovesaid company is still showing with active status. He filed a copy of the company information from the record of ROC dated 27.05.2024. Further, he brought to notice page 155 of the paper book wherein the investor has filed income-tax return for Assessment Year 2016-17 and further he brought to notice page 157 of the paper book which is the balance sheet of the investor company and submitted that it has substantial shareholder funds. He submitted that there is sufficient fund in the business of the investor company to make the investment in the assessee company. Therefore, this proves the creditworthiness. Further, he submitted that all these information were submitted before the ld. CIT (A), however the same were rejected.
On the other hand, ld. DR for the Revenue submitted that there is no sufficient cash with the investor company. He brought to our notice page 120 of the paper book and submitted that investor company and the assessee have not declared sufficient profit during the year. Therefore, it is only a paper company and assessee has received huge share premium. Further, he submitted that the assessee could not bring the Directors of the lender company before Assessing Officer. Therefore, he submitted that onus is not discharged by the assessee with regard to identity and creditworthiness of the lender company and he supported the findings of the lower authorities.
Considered the rival submissions and material placed on record. We observed that assessee has issued share capital along with share premium to one M/s. Karda Traders Pvt. Ltd. and submitted all the relevant documentation. After considering the documentations submitted by the assessee, the Assessing Officer first observed that the company does not exist in the address supplied by the assessee based on the Inspector’s report and after analysing the bank statement, he observed that the company does not have sufficient funds to make such investment in the assessee’s company. Accordingly, he came to the conclusion that the identity and creditworthiness are not proved in the case of the assessee. After considering the detailed submissions made by the assessee, we observed that the day to day movement of the funds in the bank statement does not prove the creditworthiness of the company. However, it is brought to our notice that the investor has huge shareholders funds in its balance sheet which is placed at page 157 of the paper book and also brought to our notice that there are sufficient trading activities carried on by them in Financial Year 2015-16 (refer page 158 of the paper book). The substantive turnover of the company shows that it is active and it may not be necessary that they should make sufficient profit to make investment in another company. What is relevant to judge on the creditworthiness is availability of sufficient funds in the business of the company. We observed that they have made sufficient investment of Rs.3,29,50,000/- by mobilizing funds through trading activities and investment activities. Further, we observed that the investor company is filing its return of income every year and assessee has filed return of income as well as assessment order to prove their existence and further brought to our notice that the investor company is still in existence in the records of Ministry of Corporate Affairs. For the sake of brevity, it is reproduced below :-
From the above, we observed that the addition made on the basis of identity and creditworthiness of the investor company by the AO and from the record, we observed that the assessee has proved the existence of the company as well as bringing on record reasonable capacity in their hands to make the investment in the assessee’s company and further the assessee has received the abovesaid investment through bank and utilised the same in its business as capital receipt. Therefore, the addition made by the Assessing Officer is accordingly deleted.