Creditworthiness Of Share Subscribers To Make Investment In Capital Of Taxpayer Company Not Disputed: Kolkata ITAT Deletes Addition U/s 68

The Kolkata ITAT deleted the addition made under Section 68 of Income Tax, 1961 after finding that the assessee has established the onus placed upon him in respect of identity and creditworthiness of the share subscribers and also the genuineness of the transactions.

The Member of the ITAT comprising Sanjay Garg (Judicial Member) and Girish Agrawal (Accountant Member) observed that “the AO has not made out his case with cogent material on record that the appellant could come under the purview of section 68 of the Act with regard to share capital as reflected in the balance sheet when there is no finding with any cogent material evidence that the same was actually bogus in nature. It is accordingly observed that creditworthiness of the share subscribers to make investment in the share capital of the appellant company cannot be a disputed matter as per material facts on record”. (Para 6)

As per the brief facts of the case, Assessee filed its return of income, reporting total income as nil. Case was selected for scrutiny through CASS with the reason “large share premium received” for which statutory notices were issued and served on the Assessee. Against the said notices, assessee filed various details and documents. In the course of the assessment, AO noted that assessee has raised share capital including share premium. AO sought details and explanation on this from the assessee for which summon u/s. 131 of the Act was issued to the director of the assessee. Assessee furnished details of the share applicants but AO was not convinced and applied the test of human probability made the addition u/s.68. On appeal, the CIT(A) deleted the addition so made by AO.

The Bench noted that the shareholders furnished their bank statements and investment schedules to establish the source of funds but they have also furnished their respective sources of funds.

The Bench also observed that mere non-appearance of directors is no basis for invoking provisions of section 68 of the Act.

The Bench at the same time, mentioned that ITAT has never held that share capital and share premium can be assessed as unexplained cash credit merely for high share premium even though the identities and creditworthiness of the share applicant and genuineness of the transactions have been established.

The Bench clarified that “What is held by the Hon'ble ITAT is that revision proceedings u/s 263 are valid where the transactions have been accepted as genuine without making proper enquiries”.

Therefore, on finding all the details and documents placed on record, the ITAT concluded that the CIT(A) had rightly held that addition made by AO was not justified and addition is liable to be deleted, and hence, dismissed the Revenue's appeal.

Counsel for Appellant/ Department: P. P. Barman

Counsel for Respondent/ Taxpayer: Miraj D. Shah

Case Title: Income-tax Officer verses Rajshree Integrated Cold Chain Pvt. Ltd

Case Number: ITA No.40/Kol/2021

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