Calcutta HC Upholds ITAT Order Deleting Addition u/s 68 of Income Tax Act made on account of Bogus Share Capital [Read Order]

In  a recent case, the Calcutta High Court has upheld the Income Tax Appellate Tribunal (ITAT) order which upheld the CIT(A) order deleting addition made under section 68 of the Income Tax Act, 1961 made on made on account of  Bogus Share Capital.

The revenue filed an appeal under Section 260A of the Income Tax Act, 1961, (the Act) against the order dated 19.11.2023 passed by the Income Tax Appellate Tribunal “B” Bench, Kolkata (tribunal), for the assessment year 2012-2013. The revenue is aggrieved by the order passed by the tribunal in affirming the order passed by the Commissioner of Income Tax (Appeals), Kolkata (CIT(A)) dated 26.12.2022, setting aside the addition made by the assessing officer under Section 68 of the Act vide assessment order dated 26.03.2020.

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Wise Investment Private Limited, the assessee filed its return of income for the assessment year under consideration, 2012-2013, declaring a total income of Rs. 42,000/-. The case was selected for scrutiny and notice under Section 143(2) of the Act was issued on 12.08.2013, the assessing officer heard the assessee in person.

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Subsequently notice under Section 142(1) of the Act was issued with a questionnaire on 15.01.2015 and the assessee was heard. In the opinion of the assessing officer the share premium as fixed by the assessee was abnormally high and considering the financial strength of the assessee company, the genuineness of the share transaction, identity and creditworthiness has not been established and therefore it justified addition under Section 68 of the Act. As could be seen from the assessment order dated 26.03.2015, the assessee had responded to the notices and had filed documents and the details as called for by the assessing officer.

The assessing officer opined that merely dumping papers and document on the table of the assessing officer does not in any way mean compliance of the notice and the burden of proof cannot be shifted on the revenue by cart load of documents as the documents which have been submitted cannot be explained.

The assessee carried the matter on appeal before CIT(A) raising various grounds. The CIT(A) called for a remand report from the assessing officer upon perusal of the documents and details furnished by the assessee which documents and details were also placed before the assessing officer during the assessment.

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The CIT(A) observed that the assessing officer has examined the directors of the assessee company and the share subscribing companies by recording their statements under Section 131 of the Act and after examination of the documents filed by the assessee as well as the share subscriber companies before whom the assessing officer did not point out any infirmity in the matter relating to the information sought for in respect of the financial transactions namely identity of shares subscribers, creditworthiness of share subscribers and genuineness of the transactions.

Further the CIT(A) noted that the assessing officer after independently examining the directors of the share subscribing companies as well as the document furnished before him had concluded that the share capital issued by the assessee is explained. The CIT(A) concluded that the assessee has offered its explanation along with complete documentary evidences and produced the directors of the company for examination and explained the nature and source thereof, the share capital and premium selected.

The CIT(A) had pointed out that in the course of remand the enquiry was enlarged to the examination of the principles officers/directors of the share applicant companies in person and that one of the important factors which emerged from the remand report is that not only did the assessing officer conducted enquiry by issuing notices under Section 131 of the Act but in the first remand stage he went a step further and deputed a departmental inspector to conduct field enquiry. Ultimately, the CIT(A) had allowed the assessee’s appeal which was challenged before the learned tribunal by the revenue and affirmed by the learned tribunal.

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After considering the facts the CIT(A) has concluded that the assessing officer has not doubted the identity and creditworthiness of the share subscribers but has doubted the payment of high share premium. On this aspect the CIT(A) has noted the growth of the assessee company which was reported to be at 39% and the assessee was also carrying impressive inventories of quoted equity shares for company in such stages of its operation. The assessee had inventories of Rs. 8.38 crores as on 31.03.2011 and 9.36 crores as on 31.03.2012.

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The audited result of the assessee has shown its profits grown by over three times between assessment years 2011-2012 and the assessment year 2012- 2013. Further during the same period, the earning per share of the assessee company had grown from two and half times to 16% per share of Rs. 10 and therefore the CIT(A) on facts held that the assessee company was showing good returns and were showing good profits for its investors and it is a growing company. Therefore, the submission of the revenue that the allegation that unduly high premium was charged was not examined by the CIT(A) is incorrect.

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The tribunal noted that the paper book containing 1029 pages were filed and all documents were placed before the tribunal and after noting the facts the tribunal concluded that the CIT(A) was well justified in deleting the addition made under Section 68 of the Act.

Since there is no question of law much less substantial question of law arising for consideration in this appeal, the Chief Justice T.S. Sivagnanam and Justice Chaitali Chatterjee (Das) dismissed the appeal.

To Read the full text of the Order CLICK HERE

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