The Chandigarh Bench of Income Tax Appellate Tribunal ( ITAT ) held that public listed companies are not required to prove the source of the source of share capital under Section 68 of Income Tax Act,1961.

Vardhman Polytex Ltd,appellant-assessee,issued 21.82 lakh equity shares to M/s Altfort Merchants Pvt. Ltd. (AMPL) on 15-12-2014 at a face value of ₹10 each with a premium of ₹45 per share. To comply with Section 68, the assessee submitted AMPL’s PAN, address, auditor’s report, financial statements for FYs 2013-14 to 2015-16, and its return of income for AY 2015-16, along with a detailed note on the source of investment.

The issue price was stated to have been determined as per SEBI norms. The AO, however, rejected the explanation, alleging inadequate details on the source of funds, and added ₹218.20 lakh as unexplained share capital under Section 68, while accepting the share premium. The Commissioner of Income Tax (Appeals)[CIT(A)] upheld the addition, and the matter was taken to the tribunal in appeal.

The two member bench comprising Laliet Kumar (Judicial Member) and Manoj Kumar Aggarwal (Accountant Member) after reviewing the facts, held that the impugned addition was not justified.

It observed that since the assessee was a publicly listed company, it was not required under Section 68 to prove the source of the source of share capital, and the immediate source of investment was not disputed.

The assessee had provided sufficient documents to support the investment, and part of the funds was received in the preceding year, which was already accepted. The AO had also accepted the share premium of ₹981.90 lakh from AMPL, making the disallowance of ₹218.20 lakh share capital inconsistent. As no independent enquiry was conducted with the investor, the tribunal deleted the addition and directed the AO to recompute the income.

Accordingly,the appeal was allowed.

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