Identity, Creditworthiness of Shares Subscribing Companies, Transaction Genuineness Proven: ITAT deletes addition of 40 Lakhs u/s 68 of Income Tax Act [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the addition of Rs. 40 lakhs under Section 68 of the Income Tax Act, 1961 as the identity, creditworthiness of the share-subscribing companies, and the genuineness of the transactions were proven.

 The assessee City Shoppe Estates Limited filed its return of income on 29.03.2022 reporting total business loss of Rs.1,71,281/-. Subsequently, notice under Section 148 of the Income Tax Act dated 30.03.2017 was issued on the assessee. Assessee filed a fresh return in response to notice under Section 148 on 02.05.2017 and sought copy of reasons to believe recorded by the Shri Subhas Agarwal for initiating the said proceedings

During the search operation and post search investigation, it was found that the group had floated a number of companies and entities which were mere paper companies/entities used to introduce back the unaccounted income generated by it in the guise of share capital and share premium and unsecured loans through host of entry operators. It was further noted that in the year under consideration, assessee had taken benefit of Rs.40, 00,000/- from such cash deposit through shell/jamakharchi companies managed and controlled by different entry operators.

It was also referred to the statement of one Shri Subhas Agarwal recorded under Section 132 of the Act during the course of search and seizure operation on whose deposition, ld. AO formed the reason to believe that assessee’s income to the extent of Rs.40 lakhs chargeable to tax has escaped assessment.

The AO observed that during the relevant year assessee had raised share application money of Rs. 20 lakh each from Terminal Sales Pvt. Ltd. and Vanaspati Vinimay Pvt. Ltd. These two companies were allotted 20000 shares each of face value of Rs. 10/- each with a premium of Rs. 90/- each.  The AO also noted that both the share subscribing companies had replied under Section 133(6) vide their letter dated 27.10.2017 whereby they had explained the source of their investment made into the assessee company.

Further, acknowledged that transactions are through cheques. He also noted that mere filing of copies of ITRs/bank statement of the account of subscriber could not absolve the subscriber to the complicity of introducing unaccounted money in its books in the garb of equities Assessment was thus completed by making an addition of Rs. 40 lakh by holding it as unaccounted money in the garb of share capital and share premium in the books of the assessee treating it as unexplained cash credit under Section 68 of the Income Tax Act.

 Mr. A. K. Tulsiyan, representing the assessee submitted that the basis of addition made by the AO was the statement recorded by one Shri Subhash Agarwal in the course of search on Pasari Group. It was important to note that assessee was not subjected to the said search operation. Furthermore, the statement so recorded was later retracted before the DCIT on 24.03.2014. In this respect, further referred to a letter dated 24.03.2014 from Shri Subhash Agarwal confirming that he had retracted his statement for which an affidavit was furnished with the office of DCIT.

Mr. Umakanta Dhrupati, placed reliance on the orders of the authorities below and submitted that the assessee's own income has been infused in the guise of share capital through the investor companies. According to him, assessee could not establish the identity and creditworthiness of the share subscribers and prove the genuineness of the transaction. 

The two member bench of the tribunal comprising Sanjay Garg ( Judicial member) and Girish Agrawal  ( Accountant member)  noted that AO without even going through and discussing the details submitted by the subscriber companies, took an adverse view on the identity, creditworthiness of the subscribers and the genuineness of the transactions.

Further found that the case of the assessee was squarely covered by the decision of jurisdictional High Court in the case of Naina Distributor Pvt. Ltd. (Supra). ITAT have already summarised the observations and noting as well as the finding arrived at by the High Court in this case which applies on the factual matrix of the present case.

Considering the facts and circumstances of the case and respectfully following the decision of the jurisdictional High Court of Calcutta (supra), it was found that the assessee has discharged its onus to prove the identity and creditworthiness of the share subscribing companies and the genuineness of the transaction towards issue of share capital of Rs.40, 00,000/- during the year.

Accordingly, ITAT deleted the addition made by the AO. Grounds taken by the assessee in this respect are allowed.  Appeal of the assessee was allowed.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates