Investments from group companies having low income/assets not enough for addition u/s 68

Investor companies having low income and assets in the form of investments have been created through rotation of money in between the group companies not enough ground to prove that any unaccounted money of the assessee has been introduced in the assessee company warranting addition under section 68 of the Income Tax Act

ABCAUS Case Law Citation
ABCAUS 3623 (2022) (12) ITAT

Important Case Laws relied upon:
CIT vs. Anmol Stainless (P.) Ltd. (2022) 138 taxmann.com 535

In the instant case, the assessee had cjhallenged the order passed by the CIT(A) in confirming the addition as unexplained cash credit u/s 68 of the Income Tax Act, 1961 (the Act) being the share capital & share premium money received during the year from the share applicants

The appellant assessee was a limited company. The Assessing Officer (AO) from the accounts observed the assessee during the year had shown receipt of share capital including share premium of large amount from different private limited companies. 

On being asked to explain in this respect, the assessee furnished the required documents to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction.

However, the Assessing Officer treated the said share capital and share premium as unexplained income of the assessee and made the impugned addition of u/s 68 of the Act.

In first appeal, the CIT(A) confirmed the additions so made by the Assessing Officer (AO).

The Tribunal noted that the Assessee had proved the identity of the share subscribers. The share applicants were the Group companies of the assessee company and they were body corporate, registered with the ROC and they were available at the given address. Further, the share applicants had furnished copy of PAN and were registered with ROC having CIN. All the data’s of such companies were available with Income Tax Department & ROC. They were also assessed to Income Tax regularly.

In respect of genuineness of the transaction the assessee had established that the share application money was received through proper banking channels; the share holders had sufficient fund for the purpose of investment & the investments were reflected in their books of account and Bank accounts of the shareholders confirmed the transactions. All are share holders were regularly assessed to Income Tax.

Further, the Tribunal observed that the assessee had explained that it was a manufacturing company needed funds for expansion of both turnover and asset. This was explained by the fact that during the impugned point of time there was heavy increase in fixed assets also the turnover also increased more than double. Further, the reason to invest also included strategic relation and were made by the associate / group companies, having directors directly related to the assessee company’s directors.

The Tribunal observed that though the CIT(A) had himself done the exercise of fact finding and examining the documents had not pointed any doubt or discrepancy with regard to the identity of the investors. The only contention that has been raised by the CIT(A) in the impugned order was that the investor companies had low income.  Assets in the form of investments had been created through rotation of money in between the group companies and that the assets mainly consisted of cash and cash equivalents.  

The Tribunal stated that the contentions of CIT(A) were not enough to prove that any unaccounted money of the assessee had been introduced in the assessee company, warranting addition under section 68 of the Income Tax Act. Even after making elaborate exercise of examining the documents, the CIT(A) could not point out any rebuttal to the evidences furnished by the assessee to prove the identity, creditworthiness of the share subscribers and genuineness of the transaction.

Following the judgment of the jurisdictional High Court, the ITAT allowed the appeal in favour of the assessee and deleted the impugned addition

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