The Kolkata Bench of Income Tax Appellate Tribunal ( ITAT ) deleted an addition of ₹2.30 crore made under Section 68 of the Income Tax Act,1961.It found that the assessee had successfully established the identity, creditworthiness, and genuineness of the share transactions, despite the Assessing Officer (AO) initially concluding otherwise based on the company’s low revenue and profits.
Shankar Traders & Distributors Pvt. Ltd.,the appellant-assessee,was a private limited company registered as a non-banking finance company (NBFC) with the RBI, having obtained its registration certificate on 10th April 2021 and engaged in providing loans, advances, and dealing in shares and securities.
For Assessment Year( A Y)2013-14, the assessee had filed its e-return on 25th September 2012. The case was selected for scrutiny through Computer Aided Scrutiny Selection(CASS), and notices under Sections 143(2) and 142(1) of the Act were validly served.
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During the assessment, the AO reviewed the financials and observed that the company had issued equity shares, receiving ₹4,60,000 as share capital and ₹2,25,40,000 as security premium. The AO, noting the low revenue and profits, concluded that the appellant-assessee could not justify such a large share premium.
As a result, the AO made an addition of ₹2,30,00,000 under Section 68 and ₹1010 under Section 14A, assessing the income at ₹2,29,68,322.
The assessee, dissatisfied with the AO’s order, appealed before the Commissioner of Income Tax(Appeals)[CIT(A)], challenging the addition made under Section 68 of the Act. The assessee submitted various documents to prove the identity and creditworthiness of the share applicants and the genuineness of the transactions.
Despite this, the CIT(A) upheld the addition, concluding that the assessee had failed to establish the identity, capacity, and genuineness of the transactions. It was determined that the share applicants lacked the financial capacity to justify the substantial share premium, and the assessee had not adequately discharged its burden of proof.
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The assessee, dissatisfied with the CIT(A)’s decision citing multiple rulings, had its appeal dismissed and then appealed before the Tribunal.
The tribunal heard the arguments and reviewed the records challenging the addition of ₹2.30 crore under Section 68 for Assessment Year (AY) 2012-13. The assesse had issued 46,000 equity shares with a ₹490 premium, and the dispute concerned ₹2,30,00,000 received from 13 share applicants.
The bench noted that the assessee had provided all necessary documents establishing the identity, creditworthiness, and genuineness of the transactions. It referred to Supreme Court rulings that placed the burden on the assessee to prove these aspects, after which the burden shifted to the AO to conduct further investigation, which was not done in this case.
The appellate tribunal observed that all share applicants were registered private limited companies, regularly assessed for tax, with audited financial statements. The AO’s general dissatisfaction with the documents submitted was found unjustified, and Section 56(2)(VIIB) was deemed inapplicable.
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The two member bench comprising Sanjay Garg(Judicial Member) and Dr. Manish Borad(Accountant Member) set aside the CIT(A)’s findings, deleted the addition, and allowed all effective grounds raised by the assessee confirming that the identity, creditworthiness, and genuineness of the share applications were sufficiently established.
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