The Delhi bench of Income Tax Appellate Tribunal ( ITAT ) upheld the Commissioner Of Income Tax (Appeals) [CIT(A)]’s decision to delete an addition of Rs. 2,37,77,550 related to share capital, confirming that the genuineness of transactions and investor creditworthiness were adequately proven.
The revenue appellant had filed an appeal challenging the order passed by the CIT(A) regarding the deletion of addition of Rs. 2,37,77,550 made on account of share capital.
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Rathi Special Steels Ltd, assessee company collected Rs. 2,37,77,550 in share capital and share premium from various parties. The shares had a face value of Rs. 10 and a premium of Rs. 47 each. The assessee provided complete details of all share investors to the Assessing Officer ( AO ).
The AO attempted to verify these investors’ existence but found that the companies were not at the provided addresses. The assessee then gave updated addresses, and notices sent to these addresses were served. The investors submitted the required details directly to the AO. The AO reviewed financial details such as net profit, net worth, and share premium contributions.
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The assessee submitted extensive documentation to prove the investors’ creditworthiness and the genuineness of the transactions, including ITR copies, PAN cards, financial statements, and mutual fund statements. Despite this, the AO found the creditworthiness unproven and noted the absence of directors for examination.
The AO treated the entire share capital and share premium of Rs. 2,37,77,550 as unexplained cash credit under section 68 of the Act.
The CIT(A) found that the investor companies had sufficient net worth and that the assessee had met the Section 68 requirements with the provided documents. It was confirmed that the investors used redeemed mutual funds for their investment and this was verified through bank statements. Consequently, no addition to the assessee’s income was warranted.
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The tribunal noted that the revenue did not dispute the factual findings by the CIT(A) except for a general claim about cash deposits. It confirmed that the immediate source of credit was the redemption of mutual funds, documented in balance sheets, and supported by tax assessments and a valuation report, which established the genuineness of the transactions.
The two member bench comprising Saktijit Dey ( Vice President ) and M.Balaganesh ( Accountant Member ) dismissed the revenue appeal holding that the CIT(A) was justified in deleting the addition made on account of share capital and share premium.
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