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February 23, 2023

The identity and creditworthiness of share subscribing corporations proven to make addition u/s 68 untenable

The identity and creditworthiness of share subscribing corporations proven to make addition u/s 68 untenable

Fact and issue of the case

Brief facts of the case are that assessee filed its return on 28.09.2012, reporting total income at Rs.2,06,404/-. Case was selected for scrutiny through CASS for which statutory notices were issued and served on the assessee. In the assessment proceeding, Ld. AO noted that assessee had introduced Rs.230 lacs in the form of share capital including share premium for which it has issued 4,60,000 shares at a face value of Rs.10/- each with a premium of Rs.40/- each to eighteen different share subscribing companies. Ld. AO in the course of assessment proceedings directed the assessee to produce the director of the assessee and also the directors of the allottee companies along with relevant documentary evidence and details. By applying the test of human probability, ld. AO made an addition of Rs.230 lacs u/s. 68 of the Act. Aggrieved, assessee went in appeal before the Ld. CIT(A) who confirmed this addition made by the Ld. AO. Aggrieved, assessee is now in appeal before the Tribunal.

Shri Anil Kochar, Advocate represented the assessee and Smt. Ranu Biswas, Addl. CIT represented the revenue.

It was also submitted that audited Balance Sheet of each of the share applicant companies reflected the amount of investment made by them in the assessee as against their respective net worth. He thus, contended that Ld. AO has made the addition with a predetermined mind set. Further, according to him, they are all registered companies under the Companies Act and are active companies on the MCA portal.

Observation of the court

From the perusal of the paper book and the documents placed therein, it is vivid that all the share applicants are (i) income tax assessees, (ii) they are filing their income tax returns, (iii) share application form and allotment letter is available on record, (iv) share application money was made by account payee cheques, (v) details of the bank accounts belonging to share applicants and their bank statements, (vi) in none of the transactions there are any deposit of cash before issuing cheques to the assessee, (vii) all the share applicants are having substantial creditworthiness represented by their capital and reserves.

Considering the facts and circumstances of the case and the material placed on record, we find that assessee has discharged its onus to prove the identity and creditworthiness of the share subscribing companies and the genuineness of the transactions towards sum of Rs.121.50 lacs received during the impugned year. Accordingly, considering these facts and in the light of the judicial precedence referred above, we set aside the order of the ld. CIT(A) and direct the ld. AO to delete the addition made towards share capital and share premium u/s. 68 of the Act. Accordingly, grounds taken by the assessee in this respect are allowed.

In the result, appeal of the assessee is allowed. Order pronounced in the open court on 13 January, 2023


In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here


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