ACIT-3 vs. Shree Rajlakshmi Textile Park Pvt. Ltd.; Date of order: 18th October, 2016; [ITA No. 4607/Mum/2012; A.Y.: 2008-09; Mum. ITAT] Section 68: Cash credits – Share application money and share premium – Identity, genuineness of transaction and creditworthiness of persons from whom assessee received funds is proved – Addition u/s 68 is not justified

9.  The Pr. CIT-2 vs. Shree Rajlakshmi Textile Park Pvt. Ltd. [Income tax Appeal No. 991 of 2017] Date of order: 4^th November, 2019 (Bombay High Court)

ACIT-3 vs. Shree Rajlakshmi Textile Park Pvt. Ltd.; Date of order: 18^th October, 2016; [ITA No. 4607/Mum/2012; A.Y.: 2008-09; Mum. ITAT]

Section 68: Cash credits – Share application money and share premium – Identity, genuineness of transaction and creditworthiness of persons from whom assessee received funds is proved – Addition u/s 68 is not justified

The assessee company is in the business of construction of godowns. In the course of scrutiny, the AO noticed that the assessee had received share application money, including share premium of Rs. 19.40 crores. The AO added the same to the assessee’s returned income as cash credit, determining its income at Rs. 19.40 crores.

Aggrieved by this order, the assessee company filed an appeal to the CIT(A). The CIT(A) deleted the addition of Rs. 19.40 crores after calling for a remand report from the AO. The remand report indicated that all 20 parties who had subscribed to the shares of the assessee appeared before the AO and submitted confirmation letter of purchase of shares, copy of audited balance sheet and profit & loss account, copy of bank statement along with return of income, as well as Form 23AC filed with the Registrar of Companies. It also found that Rs. 4.90 crores represented an amount received in the earlier assessment year and from promoters. Therefore, it could not be added as cash credit for the subject assessment year. So far as the balance amount of Rs. 14.50 crores is concerned, the CIT(A) examined the issue and concluded that the shareholders had clearly established their identity, capacity and genuineness of the transactions on the basis of the documents submitted.

The Revenue filed an appeal to the Tribunal against the order of the CIT(A). It stated that during the assessment and also remand proceedings, the letters sent through RPAD to the companies who invested in the respondent’s company were returned back with an endorsement ‘No such company exists in the given address’. This by itself, according to him, establishes the perversity of the impugned order.

The Tribunal found that the identity and capacity of the shareholders as well as the genuineness of the transactions stood established. Further, it records that the Revenue is not able to submit anything in support of its challenge to the order of the CIT(A), except stating that the order of the AO requires to be restored.

Aggrieved by the order of the ITAT, the Revenue filed an appeal to the High Court. The Court observed that in the report the officer indicates that notices sent to some of the companies came back un-served, yet, thereafter, the companies appeared before him through a representative and made submissions in support of their investments. Further, the change of address was given to the AO and yet it appears that notice was served on an incorrect address. Further, one of the directors of a company which has subscribed to the shares, has also given an affidavit stating that the company has paid Rs. 30 lakhs for 30,000 equity shares of Rs.10 each at a premium of Rs. 90 to the assessee company. Thus, the amounts received for share subscription is not hit by section 68 of the Act as the identity and the capacity of the shareholder is proved. Besides, the genuineness of the transactions also stands established. Accordingly, the appeal is dismissed.