ITAT Upholds Deletion of S.68 Share Premium Addition for 14 Investors as Verification Compliance Satisfied [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) affirmed that the deletion of additions made under Section 68 of the Income Tax Act, 1961 was proper because verification of share premium received from 14 investors satisfied statutory requirements.

Talentube Entertainment Private Limited, engaged in film production and talent sourcing, e-filed its return declaring nil income. During scrutiny proceedings underSection 143(3) of the Income Tax Act, 1961, the Assessing Officer (AO) noted that the company issued 5,748 equity shares at a premium of Rs. 8,688.68 per share, aggregating to ₹5,00,00,012 from 15 subscribers.

The AO treated the entire sum as unexplained cash credit under Section 68 of the Income Tax Act, 1961, holding that the creditworthiness and genuineness of subscribers had not been proved despite valuation based on the Discounted Cash Flow method.

In appeal, the Commissioner of Income Tax (Appeals) [CIT(A)], deleted the addition relating to 14 investors and sustained an addition of ₹74,98,262 only in respect of a non-resident investor for lack of documentary evidence supporting creditworthiness. Both parties appealed against these findings.

Also Read:Loose Papers, WhatsApp Chats Not Enough: ITAT Quashes S. 69A Additions in Balmukund Group Cases [Read Order]

Counsel for the assessee, Advocate Zaman Ali, submitted that the statutory conditions under Section 68 of the Income Tax Act, 1961, identity, creditworthiness, and genuineness, stood satisfied for all 15 investors. Concerning the non-resident investor, the assessee produced additional documents including bank statements as additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 and requested admission on grounds that the material was unavailable earlier despite reasonable efforts.

Because one wrong link between GSTR-1, 2B and 3B can trigger a notice. Click here

Counsel for the authorities, Hemanshu Joshi argued that the abnormally high share premium was disproportionate to the assessee’s business activity and profitability, raising doubts on genuineness. It was contended that the assessee failed to prove creditworthiness comprehensively, particularly of the non-resident subscriber. The department submitted that verification through notices alone did not establish source of funds beyond doubt and that the Commissioner erred in deleting the addition relating to 14 investors.

The Bench comprising Judicial Member, Anikesh Banerjee and Accountant Member, Girish Agrawal upheld the Commissioner of Income Tax (Appeals)’s deletion of Rs.4,25,01,740 relating to 14 investors. The Tribunal noted that notices issued under Section 133(6) of the Income Tax Act, 1961 during assessment had been duly complied with, funds moved through banking channels, and identity, genuineness, and creditworthiness were established through returns, bank records, and financial statements.

Also Read:Income Tax Recovery During Pendency of ITAT Appeal Stayed: Gauhati HC Orders tribunal to Take up Interim Pleas Expeditiously [Read Order]

The Tribunal held that all three conditions prescribed under Section 68 of theIncome Tax Act, 1961 stood satisfied for the 14 investors on the basis of documentary evidence and verification, and that suspicion alone could not justify additions without further enquiry.

In regard to the remaining sum of Rs.74,98,262 received from a non-resident investor, the Tribunal admitted additional evidence and remanded the matter to the CIT(A) for fresh verification. As a result, the assessee’s appeal was allowed for statistical purposes and the revenue’s appeal was dismissed.

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