The Delhi bench of the Income Tax Appellate Tribunal( ITAT )has held that addition under section 68 is invalid when the creditworthiness of money was proved by a balance sheet showing legitimate fund transfer to the company.
M/s Placid Buildwell Pvt Ltd, the assessee filed the original return of income. The Return was selected for scrutiny assessment through CASS and accordingly, statutory notices were issued and served upon the assessee.
The assessee is engaged in the business of trading under-constructed flats. Returned income of Rs. 2,78,127/- was assessed at Rs. 3,27,511/- vide order framed under section 143(3) of the Income-tax Act, 1961 [the Act]. Vide notice the assessment was reopened under section 147 of the Act. The reopening was done based on information received from the office of the ADIT, INV 1, Faridabad from which it came to the knowledge that various group companies of RPS Group have received share capital/premium from various dummy entities and the assessee is one of the group companies of RPS Group and has received share capital/premium amounting to Rs. 14,89,50,000/- during the F.Y. 2008-09 from Heaven Infracon Pvt Ltd and Luminous Infrastructure Pvt Ltd.
The Assessing Officer found that the assessee has returned an amount of Rs. 3.50 crores to M/s Luminous Infrastructure Pvt Ltd out of a total share capital /premium of Rs. 20.05 crores. Thus, the total share capital/premium left with the assessee was 16.55 crores, out of which it has invested an amount of Rs. 14.06 crores in the shares of M/s RPS Infrastructure Ltd.
Since Rs. 14.06 crores was introduced in M/s RPS Infrastructure Ltd, the Assessing Officer made a protective addition of Rs. 14.06 crores in the hands of the assessee, as a substantive addition has been made in the hands of RPS Infrastructure Ltd. Balance amount of Rs. 2.94 crores was also added on substantive basis under section 68 of the Act.
Before, the CIT(A) it was argued that the assessee has explained the transaction in light of section 68 of the Act. The assessee filed necessary evidence which was examined by the CIT(A). The CIT(A) observed that credit creditworthiness of a company means the availability of funds from legitimate sources in the hands of investors that can be cross-checked from the availability of funds which can be verified from the balance sheet and bank statement. Creditworthiness cannot be judged only based on returned income and deleted the impugned addition.
Considering the assessment status of all the three share applicant companies, the two-member bench comprising Shri N K Billaiya, Accountant Member and Shri Yogesh Kumar U S, Judicial Member held that the assessee has successfully discharged the initial onus cast upon it by provisions of section 68 of the Act.
The CESTAT dismissed the appeal of the revenue.
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