In a recent ruling, the Ahmedabad Bench of the Income Tax Appellate Tribunal ( ITAT ) quashed additions under section 68 of the Income Tax Act, 1961, and the revisionary order passed by the Principal Commissioner of Income Tax ( PCIT ) as the investors proven genuine.
It is to note that two appeals have been filed by the assessee, and that the facts and issue are common, both appeals filed by the assessee are taken up together.
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In this case, the assessee company, Sustainable Spinning and Commodities Pvt. Ltd., is engaged in the business of manufacturing cotton yarn. The Income Tax Return ( ITR ) was filed by the assessee electronically for the Assessment Year (A.Y.) 2018-19 on September 17, 2018, declaring a total income at Nil.
During the assessment proceedings, it was noted by the Assessing Officer ( AO ) that the assessee had a substantial increase in share capital amounting to Rs. 10,00,20,000, and further, the assessee company repaid unsecured loans totaling to Rs. 6,22,80,570 during the financial year. After reviewing the submissions made by the assessee, the AO was of the opinion that although the company had stated the source of funds, the assessee company gave insufficient evidence to establish the creditworthiness of the shareholders and the genuineness of the transactions.
Since adequate evidence could not be given by the assessee, shareholders, and loan creditors, the AO made additions by treating the share capital amount of Rs. 3,77,39,430 as unexplained cash credit under Section 68 of the Income Tax Act,1961.
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The Commissioner of Income Tax ( Appeals ) [ CIT(A) ] after referring a judgement by the Supreme Court held that the assessee has a legal responsibility to prove the legitimacy of transactions, identify creditors, and demonstrate the creditworthiness of investors.
During the appellate proceedings before the ITAT, the council on behalf of the assessee, contended that necessary evidence was submitted to the AO during the assessment process and a paper book containing the assessment orders of the four investors, along with all relevant documents presented during their respective assessment proceedings.
The ITAT bench, comprising of Annapurna Gupta ( Accountant Member ) and Siddartha Nautiyal ( Judicial Member), observed that no additions have been made in the hands of the four investors regarding the source of their investment during the course of scrutiny assessments in their respective hands.
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The bench further observed that “if the investments had indeed been confirmed as genuine in the assessments of the respective investors, there would be little justification for the AO/CIT(A) to classify these same investments as bogus in the hands of the company receiving the share capital.”
And the second appeal, was filed against the order of the Principal Commissioner of Income Tax ( PCIT ) under Section 263, which deemed the assessment order dated 15.04.2021 erroneous and prejudicial to Revenue’s interest. The assessee received Rs. 4,63,29,433 from certain depositors, later becoming shareholders. The PCIT held that the AO wrongly added only Rs. 3,77,39,430/- and should have included the remaining Rs. 85,90,003/- under Section 68 of the Income Tax Act.
The bench observed that the assessee substantiated the genuineness of the investors, and no addition is sustained under Section 68 of the Income Tax Statute. Accordingly, the assessee’s appeal against the Section 263 order is allowed.
The ITAT bench allowed the appeal filed by the assessee.
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