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.