Facts of the Case

The assessee, Goldmoon Exports Pvt. Ltd., filed its return of income for Assessment Year 2012-13 on 30.09.2012 declaring total income of ₹12,963. The return was processed under Section 143(1) and the case was subsequently selected for scrutiny. During the relevant year, the assessee raised share capital and share premium aggregating to ₹3,79,20,000 by issuing equity shares to fourteen subscriber companies. During assessment proceedings, the Assessing Officer observed that the shares were issued at a high premium despite weak financials and noted that the investing companies had received funds from other private entities. The Assessing Officer issued summons under Section 131 to the subscriber companies, which were allegedly not complied with. On this basis, and on the ground of unjustified share premium, the Assessing Officer treated the entire share capital and share premium as unexplained cash credit under Section 68. The addition was confirmed by the CIT(A), NFAC.

Issues Involved

Whether share capital and share premium received by the assessee could be treated as unexplained cash credit under Section 68 merely due to non-compliance with summons under Section 131 and high share premium, whether the assessee had discharged the onus of proving identity, creditworthiness and genuineness of the subscribers, and whether the proviso to Section 68 inserted by the Finance Act, 2012 was applicable to Assessment Year 2012-13.

Petitioner’s Arguments

The assessee contended that it had furnished complete documentary evidence including names, addresses, PANs, income-tax returns, audited financial statements, confirmations and bank statements of all subscriber companies. It was argued that the transactions were routed through banking channels and that the Assessing Officer had not pointed out any defect in the evidences produced. It was submitted that non-appearance in response to summons under Section 131 cannot, by itself, justify an addition under Section 68. The assessee further argued that the proviso to Section 68, requiring explanation of source of source, was applicable only from Assessment Year 2013-14 and not to the year under consideration. Reliance was placed on judicial precedents including CIT vs Orissa Corporation Pvt. Ltd., CIT vs Orchid Industries Ltd., Crystal Networks Pvt. Ltd. vs CIT, and CIT vs Gagandeep Infrastructure Pvt. Ltd.

Respondent’s Arguments

The Revenue supported the orders of the lower authorities and contended that the assessee failed to justify issuance of shares at a very high premium and that non-compliance with summons under Section 131 cast serious doubt on the genuineness and creditworthiness of the subscriber companies.

Court Order / Findings

The ITAT Kolkata held that the assessee had duly discharged the primary onus under Section 68 by furnishing complete documentary evidence establishing identity, creditworthiness and genuineness of the share subscribers. The Tribunal observed that non-compliance with summons under Section 131 or non-appearance of subscribers cannot be the sole basis for making an addition under Section 68 when all supporting documents are on record. The Tribunal further held that the proviso to Section 68 inserted by the Finance Act, 2012 is prospective and applicable only from Assessment Year 2013-14, and therefore the assessee was not required to explain the source of source for Assessment Year 2012-13. Relying on the Supreme Court decision in CIT vs Lovely Exports (P) Ltd. and the Bombay High Court decision in CIT vs Gagandeep Infrastructure Pvt. Ltd., the Tribunal held that if the Revenue doubted the subscribers, the remedy lay in proceeding against them and not in making addition in the hands of the assessee. Accordingly, the addition was held to be unsustainable.

Important Clarification

The Tribunal clarified that for Assessment Years prior to insertion of the proviso to Section 68, the assessee is required to establish only identity, creditworthiness and genuineness of the transaction. High share premium or non-appearance of investors, without any defect in documentary evidence, cannot justify an addition under Section 68.

Final Outcome

The appeal filed by the assessee was allowed, and the addition of ₹3,79,20,000 made under Section 68 of the Income-tax Act on account of share capital and share premium for Assessment Year 2012-13 was directed to be deleted in full.

Source Link- https://itat.gov.in/public/files/upload/1767692988-Pw6DEr-1-TO.pdf

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