Creditworthiness of Shares Subscribers and Genuineness of Transactions proved by Supported Documents: ITAT deletes Income Tax Addition u/s 68 [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the addition under Section 68, of Income Tax Act, 1961 as the identity and creditworthiness of the share subscribers, along with the genuineness of the transactions, were proved by the supported documents The assessee Wellman Logistics Pvt. Ltd filed its return of income for the AY 2015-16 by disclosing total loss of Rs. 2,52,803/-. The case of the assessee was selected for scrutiny under CASS followed by statutory notices issued under Section 143(2) & 142(1) of the Income Tax Act. During the course of assessment proceedings, AO noticed that the assessee has received a sum of Rs. 1,26,00,000/- as share application money by issuing equity shares to various parties with a face value of Rs. 10/- at a premium of Rs. 90/- per share The AO viewed that the director of the assessee company as well as the investor companies were the same and their common object creating this company as a paper company having no real worth. The AO also found that all the nine share applicant companies collected the fund from one M/s. Efficient Suppliers Pvt. Ltd. and that money was contributed to the share capital of the assessee company and he viewed that the transaction is not genuine transaction. Therefore, the creditworthiness of the alleged shareholders were not established. Accordingly, he added the alleged sum as unexplained income of the assessee under Section of the Income Tax Act, 1961 Mr. Aryan Kochar, representing the assessee submitted that alleged sum of Rs. 1, 26,00, 000/- received during the year. The assessee has furnished all necessary evidence before the authority below. AO issued the share applicants notices where it was confirmed that share capital of the assessee company has been received. On the other hand, Mr. Arun Kanti Dutta vehemently supported the orders of both the lower authorities and stated that the alleged share subscribers are accommodation entry providers and jama-kharchi companies and do not have sufficient creditworthiness to make the alleged investment. The bench noticed that share subscriber companies are duly assessed to tax and in written submission filed before CIT (A) details of PAN, bank statement, confirmation letters have been filed by the assessee and it also stated that the alleged share subscribers had sufficient pre-capital and reserve to justify the investment made in the assessee company Further has mainly disputed the creditworthiness of the share applicants. However, once the assessee has discharged the initial burden of proof casted upon it under Section 68 of the Income Tax Act to explain the alleged sum it is the turn of AO to examine these documents and find out the discrepancies and other defects so as to again made the assessee liable to furnish further evidence to explain the transaction. However, in this case, AO has not made any such effort and merely based on financial of share subscriber companies came into conclusion that such companies could not invest into the share capital of the assessee company. In present case the assessee company has furnished sufficient details which clearly proves the identity, creditworthiness of the share subscribers to invest in the said sum, genuineness of the transaction being invested in equity capital of the assessee company and all transactions are made through banking channel and duly supported by financial of the assessee company. In such circumstances, it was not justified to invoke the provisions of Section 68 of the Income Tax Act. The two member bench of the tribunal comprising Manish Board (Accountant member) and Sonjoy Sarma (Judicial member) considered view that the assessee on the extent of the complete documentary evidence has successfully proved the identity, creditworthiness of the share subscribers and genuineness of the transaction coupled with the supported documents and thus, ITAT feel it necessary to delete the alleged addition under Section 68 of the Income Tax Act at Rs. 1, 26, 00,000/-. Therefore, all the effective grounds raised by the assessee in merit of the case are allowed. Accordingly, an appeal filed by the assessee was allowed. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

Creditworthiness of Shares Subscribers and Genuineness of Transactions proved by Supported Documents: ITAT deletes Income Tax Addition u/s 68 [Read Order]

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