Genuineness of Transaction for increase in Share Capital inconsequential for Business: ITAT upholds Deletion of Addition [Read Order]

The Raipur bench of the Income Tax Appellate Tribunal ( ITAT ) upheld the decision of the Commissioner of Income Tax Appeals [CIT(A)], which deleted the additions made by the assessing officer (AO) and held that the genuineness of the transaction for an increase in share capital was inconsequential for business.

In this case, the revenue had appealed against the order of the CIT(A) which had ruled in favor of the assessee.

Coming to the facts of the present case, the assessment proceedings were completed, making an addition of Rs. 9.06 lakhs on account of unexplained cash credit under Section 68 of the Income Tax Act, 1961. Also, an addition under Section 40a(ia) of the Act was made for non-deduction of TDS for Rs. 58,000.

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The assessing authority noted that the increase in share capital from Rs. 1,00,000 to Rs. 65,70,000  in FY 2017-18, for which proof of the genuineness of the transaction like a copy of the bank statement, was not produced by the assessee.  

With regard to the addition made on account of the increase in share capital as unexplained cash credit under Section 68 of the Income Tax Act,1961, the CIT(A) noted that the share capital increase of Rs. 64,70,000 was added under Section 68 of the Income Tax Act  due to lack of proof of genuineness.

During the appeal, it was submitted by the assessee that 6,47,000 shares (₹10 each) were issued to Shri Rakesh Agrawal as part of the sale consideration for acquiring his proprietorship business and that no actual money was received, and all supporting documents were provided. Thus, the CIT(A) reached the conclusion that the additions made were not sustainable.

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The revenue’s counsel contended that the additions were made under Section 68 of the act, as there was a failure on the part of the assessee to substantiate the identity and creditworthiness of the lenders/investors and the genuineness of transactions with corroborative evidence before the AO.

The ITAT noted that the genuineness of transactions cannot be doubted as the increase in share capital was inconsequential to the takeover of the business.

The bench comprising Ravish Sood (Judicial Member) and Arun Khodpia (Accountant Member) held that the addition made under Section 68 would not be sustained, and the bench dismissed the appeal filed by the revenue. 

To Read the full text of the Order CLICK HERE

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