Addition made by AO u/s 68 Not sustainable when Assessee has proved identity, Creditworthiness, and Genuineness of Share Capital transactions: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that the additions made by the Assessing Officer under Section 68 of the Income Tax Act, 1961 are not sustainable when the assessee has proved the identity, creditworthiness, and genuineness of the share capital transactions.

The assessee is a resident corporate entity stated to be engaged in real estate business. In the assessment year under dispute, the assessee filed its return of income declaring income of Rs.90,73,860/-.

In the course of assessment proceedings, the Assessing Officer noticed that the assessee had issued 12,29,375 partly paid equity shares of Rs.10/- each at a premium of Rs.290/- each. Out of which, Rs.160/- per share including Rs.155/- as share premium was received by the assessee on allotment of shares and the balance amount of Rs.140/- per share aggregating to Rs.5,95,87,500/- towards call money was received by the assessee in the impugned assessment year.

The Assessing Officer called upon the assessee to prove the identity, creditworthiness, and genuineness of the parties from whom such share capital and share premium was received. In response to the query raised, the assessee furnished audited financial statements, copies of Income-tax returns, bank account statements, etc. of the investing companies.

The Assessing Officer treated the call money received by the assessee amounting to Rs.5,95,87,500/- as unexplained cash credit under Section 68 of the Income Tax Act and added back to the income of the assessee. Thereafter, the Assessee contested the aforesaid addition by filing an appeal before the First Appellate Authority.

The Commissioner of Income Tax (Appeal) [CIT(A)] observed that in the initial year of allotment of equity shares, the Assessing Officer has accepted the investments made in share capital and share premium to be genuine in the impugned assessment year when the call money was received, the Assessing Officer cannot take an adverse view.

Further, it was observed that the assessee has discharged its primary onus of establishing the identity and creditworthiness of the creditors as well as the genuineness of the transactions. Thus, he held that none of the ingredients of Section 68 of the Income Tax Act are fulfilled to make the addition. Accordingly, CIT(A) deleted the addition made by the Assessing Officer.

The Two-member bench comprising of G.S. Pannu (President) and Saktijit Dey (Vice-President) held that the assessee had proved the identity and creditworthiness of the investing company as well as the genuineness of transactions. The Revenue has failed to bring any contrary material on record to challenge the factual finding of the First Appellate Authority.

Therefore, the findings recorded by the First Appellate Authority cannot be disturbed. Thus, the appeal of the revenue was dismissed.

To Read the full text of the Order CLICK HERE

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