Share Premium Received Through Verified Investors Cannot Be Treated as Bogus Cash Credit: ITAT Deletes ₹45 Lakh Addition [Read Order]

The Income Tax Appellate Tribunal (ITAT) Delhi Bench has deleted an addition of ₹45 lakh made under Section 68 of the Income Tax Act 1961 holding that share premium and share capital received from verified investor companies could not be treated as bogus cash credits in the absence of contrary evidence.

The assessee Saffron Groceries Pvt. Ltd. had challenged the order of the Commissioner of Income Tax (Appeals) sustaining the addition made by the Assessing Officer (AO) under Section 68 in respect of share capital and share premium received from two investor companies it is Pearl Multicon Pvt. Ltd. and Pearl Propcon Pvt. Ltd.

During the assessment proceedings the AO questioned the genuineness of the transactions and the creditworthiness of the investors despite notices issued under Section 133(6) having been duly responded to by both investor entities. The AO nevertheless treated the share application money and premium aggregating to ₹45 lakh as unexplained cash credit.

The assessee stated before the Tribunal that it had discharged the burden cast under Section 68 by furnishing comprehensive documentary evidence including bank statements, tax audit reports, balance sheets, profit and loss accounts, income tax return acknowledgements, share application forms and confirmations from the investors.

However, It was further stated by the assessee that the shares were issued at a premium in accordance with the Net Asset Value (NAV) method prescribed under Rule 11UA(2)(a) of the Income Tax Rules.

After examining the records the Tribunal observed that the annual return filed before the Registrar of Companies clearly reflected the allotment of 56,250 equity shares during the relevant financial year and also disclosed the names of the investor companies as shareholders.

The single member bench comprising Vikas Awasthy held that these records sufficiently established the genuineness of the share allotment transaction. It further noted that the Department failed to controvert the documentary evidence produced by the assessee.

The Tribunal held that once the identities of shareholders are established, any inquiry regarding alleged bogus investments must be conducted in the hands of such shareholders and not the assessee company.

Accordingly, the bench set aside the appellate order and directed deletion of the entire ₹45 lakh addition.

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