No Addition Is Permitted U/s 68 On Account Of Share Premium Once Taxpayer Has Proved Identity & Creditworthiness Of Share Subscribers: Kolkata ITAT

Since the AO has failed to conduct proper examination of evidences relating to share premium, the ITAT deleted the addition made u/s 68 of the Income Tax Act.

Section 68 of the Income Tax Act, aims to ensure individuals and corporations transparently disclose their income by addressing unexplained cash credits in their books of accounts, placing the responsibility on the taxpayer to prove the legitimacy of such credits.

The Bench of the ITAT comprising of Sanjay Garg (Judicial Member) and Dr. Manish Borad (Accountant Member) observed that “The assessee having discharged initial burden upon him to furnish the evidences to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction, the burden shifted upon the Assessing Officer to examine the evidences furnished and even made independent inquiries and thereafter to state that on what account he was not satisfied with the details and evidences furnished by the assessee and confronting with the same to the assessee”. (Para 8)

Facts of the case:

The taxpayer had challenged an addition made by the AO by treating share capital and share premium received by the assessee as unexplained income of the assessee u/s 68.

Observations of Tribunal:

The Bench noted that the only contention raised by the lower authorities is that the director of the subscriber company did not appear in response to the summons issued u/s 131.

The Bench observed that the AO did not examine any of the documents furnished by the assessee to prove the identity, creditworthiness of the share-subscribers and genuineness of the transaction.

The Bench further observed while referring to the decision of the Bombay High Court in the case of PCIT, Panji vs. Paradise Inland Shipping Pvt. Ltd. reported in (2017) 84 taxman.com 58 (Bom) that once the assessee has produced documentary evidence to establish the existence of the subscriber companies, the burden would shift on the revenue to establish their case.

The Bench reiterated while referring the decision of the Supreme Court in the case of Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1 (SC) and Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC) that “the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and creditworthiness, then the Assessing Officer must conduct an inquiry, and call for more details before invoking Section 68.”

The Bench found that the assessee has furnished all the details and documents before the AO, who has not pointed out any discrepancy or insufficiency in the said evidences.

The Bench observed while referring the decision of the Delhi High Court in the case of Commissioner of Income-tax vs. Manish Build Well (P.) Ltd. reported in [2011] 16 taxmann.com 27 (Delhi) that the CIT(A) is statutory first appellate authority and has independent power of calling for information and examination of evidences and possesses co terminus power of assessment apart from appellate powers.

The Bench further observed that the CIT(A) has not discussed anything about the material facts of the case and not pointed out any defect and discrepancy in the evidences and details furnished by the assessee but simply upheld the order of the AO in mechanical manner.

The Bench went on to observe that the Assessing Officer could have taken an adverse inference, only if, he would have pointed out the discrepancies or insufficiency in the evidences and details received in his office and pointed out as to on what account further investigation was needed by way of recording of statement of the directors of the subscriber companies.

Even if the directors of the subscriber companies have not come personally in response to the summons issued by the Assessing Officer, adverse inference cannot be taken against the assessee solely on this ground as it is not under control of the assessee to compel the personal presence of the directors of the shareholders before the AO, added the Bench.

Therefore, on finding that the order passed by the CIT(A) is a non-speaking order, the ITAT allowed the assessee's appeal.

Counsel for Appellant/Taxpayer: Giridhar Dhelia

Counsel for Respondent/Department: Abhijit Kundu

Case Title: Dream Valley Barter Pvt. Ltd verses ITO

Case Number: I.T.A. No.497/Kol/2024

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