No Addition u/s 68 of Income Tax Act on Share Premium allowable when Identity & Creditworthiness of Share Subscribers Proved: ITAT [Read Order]

In a recent ruling, the Kolkata bench of the Income Tax Appellate Tribunal ( ITAT ) held that once the assessee has proved the identity and creditworthiness of the share subscribers,the burden shifts upon the Assessing Officer ( AO ) to examine the evidence and made independent inquiries.The Tribunal found that the addition under Section 68 of Income Tax Act is not valid as the AO failed to point out the discrepancies.

The assessee, Dream Valley Barter Pvt. Ltd challenged the addition made by the AO by treating share capital and share premium received by the assessee as unexplained income of the assessee under Section 68 of Income Tax Act, 1961.

It was alleged that the CIT(A) has not discussed anything about the material facts of the case and not pointed out any defect and discrepancy in the evidence and details furnished by the assessee but simply upheld the order of the AO in mechanical manner.

The lower authorities contended that the director of the subscriber company did not appear in response to the summons issued under Section 131 of the act. It was evident that the AO did not examine any of the documents furnished by the assessee to prove the identity, creditworthiness of the share-subscribers and genuineness of the transaction.

While referring to the decision of the Bombay High Court in the case of PCIT, Panji vs. Paradise Inland Shipping Pvt. Ltd, the tribunal observed that once the assessee has produced documentary evidence to establish the existence of the subscriber companies, the burden would shift on the revenue to establish their case.

The two member Bench of the ITAT comprising of Sanjay Garg (Judicial Member) and Dr. Manish Borad (Accountant Member) observed that the assessee discharged initial burden upon him to furnish the evidences to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction and the burden shifted upon the Assessing Officer to examine the evidences furnished and even made independent inquiries.

Since the AO has failed to conduct proper examination of evidences relating to share premium, the Tribunal deleted the addition made under Section 68 of the Income Tax Act.

To Read the full text of the Order CLICK HERE

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