ITAT Upholds Deletion of Additions Made on Account of Share Application/Capital Received as Unexplained Cash Credits u/s 68 Income Tax Act [Read Order]

The Income Tax Appellate Tribunal (ITAT), upheld the deletion of additions made on account of share application or capital received as unexplained cash credits under Section 68 of the Income Tax Act 1961.

During the course of the assessment proceedings, it was observed by the Assessing Officer that the assessee company, M/s. Devi Iron & Power Pvt Ltd had during the year under consideration received share application money and share premium from a Kolkata-based investor company as well as an in-house company.

The Assessing Officer called upon the assessee to substantiate the identity and creditworthiness of the shareholders as well as the genuineness of the transaction of receipt of the share application money from the aforesaid share applicant companies. The A.O. after referring to the balance sheets of the aforesaid share applicant’s companies concluded that they did not have the creditworthiness to make investments of substantial amounts with the assessee company.

The CIT(Appeals) vacated the recharacterization of the assessee’s duly substantiated claim of receipt of share application money of Rs.3.75 crore from the investor company viz. Escort Finvest Pvt Ltd as an unexplained cash credit under Section 68 of the Income Tax Act.

The Tribunal of Arun Khodpia, Accountant Member and Ravish Sood, Judicial Member observed that “We, thus, in terms of our aforesaid observations are of the considered view that now when the assessee company had duly discharged the onus that was cast upon it as regards proving the identity and creditworthiness of the investor company, and also the genuineness of the transaction of receipt of the share application money from the latter.

“There could have been no justification for the Assessing Officer to have drawn adverse inferences as regards the authenticity of the transaction and characterization of the receipt as an unexplained cash credit under Section 68 of the Income Tax Act.”

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