ITAT Upholds CIT(A) Order: No Addition u/s 68 for Share Capital and Unsecured Loans as Assessee Proves Identity, Creditworthiness, and Genuineness [Read Order]

The case pertained to the assessment year 2016-17, where the Revenue had challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which had deleted additions made by the Assessing Officer (AO). The AO had added Rs. 39,36,000 under Section 68 of the Act, alleging unexplained share capital and premium received by Signature Global from shareholder Vikas Garg. The AO contended that Garg’s declared income was insufficient to justify the investment. However, the CIT(A) found that the assessee had provided complete documentation, including bank statements, ITR acknowledgments, and confirmations, establishing the identity, creditworthiness, and genuineness of the transaction. The ITAT upheld the CIT(A)’s decision, noting that the assessee had even explained the "source of source" of the funds, with Garg receiving amounts from his mother and another individual.

On the issue of unsecured loans totaling Rs. 23.71 crore, the AO had doubted the creditworthiness of nine lender companies, citing their meager declared income. The CIT(A), however, examined the lenders’ financial statements and found they had sufficient net worth to advance the loans. Relying on precedents like Pr. CIT vs. Goodview Trading Pvt. Ltd. (2016) and Addl. CIT vs. Prayag Polytech Pvt. Ltd. (2019), the CIT(A) held that income alone cannot determine creditworthiness, as lenders could have other sources like accumulated funds or borrowings. The ITAT agreed, emphasizing that the loans were repaid within the same year, and the Revenue failed to disprove the genuineness of the transactions.

Understand the complete process and tax nuances of GST refunds, Click here

The ITAT also upheld the CIT(A)’s decision on Section 14A disallowance, where the AO had applied Rule 8D to compute a disallowance of Rs. 44,41,641 against exempt dividend income of Rs. 53,19,531. The CIT(A) restricted the disallowance to Rs. 29,94,832, citing the Delhi High Court’s ruling in CIT vs. JSW Energy Ltd. (2015) and the ITAT Special Bench’s decision in ACIT vs. Vireet Investment Pvt. Ltd. (2017), which held that only investments yielding exempt income should be considered for disallowance.

The Revenue’s argument that the CIT(A) admitted additional evidence without a remand report was also rejected. The ITAT noted that the CIT(A) had the authority under Section 250(4) to conduct independent inquiries, as affirmed by the Delhi High Court in CIT vs. Manish Buildwell Pvt. Ltd. (2011).

In conclusion, the ITAT dismissed all grounds raised by the Revenue, upholding the CIT(A)’s ord

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