No Addition Warranted U/s 68 Once Taxpayer Has Discharged Identity & Credit-Worthiness Of Subscribers: Kolkata ITAT

The Kolkata ITAT reiterated that once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness of the subscribers, then the AO is duty bound conduct to conduct an independent enquiry to verify the same.The Bench of Sanjay Garg (Judicial Member) and Manish Borad (Accountant Member) observed that “the assessee has successfully explained the nature and source of alleged sum and even the source of source has been proved by providing details of the funds received from other sources through banking channel which has subsequently been used to make investment in the equity capital of the assessee company”. (Para 12) As per the brief facts of the case, the assessee company, engaged in the business of share dealing and investments, declared loss of Rs. 20,434/- which was duly processed. Subsequently, the assessment was reopened, as the Assessing Officer observed that certain expenses were not disallowed/certain income had not been disclosed u/s 147/143(3). Thereafter, the CIT found that the AO has not conducted proper inquiries regarding the identity and creditworthiness of the shareholders and the re-assessment order was passed mechanically and without application of mind. The CIT therefore, invoking jurisdiction u/s 263, set aside the order u/s 148 as being erroneous and prejudicial to the interest of the revenue. Finally, the AO framed a best judgment order u/s 144, after detailed observation that the share applicant companies are jamakharchi companies engaged in the activity of providing accommodation entries. The AO concluded the assessment observing that the alleged transactions of receiving share capital and share premium are in the nature of accommodation entries and is mere rotation of funds. The AO hence made addition on account of undisclosed income.The Bench noted that all the nine shareholders are body corporates and annual returns have been regularly filed on the Ministry of Corporate Affairs portal, and all the share applicant companies are regularly assessed to tax. From perusal of the financial statements of the share subscribing companies, the Bench noticed that they had sufficient share capital and accumulated Reserves and surplus which are sufficient enough to cover up the share application money invested by them in the equity of the assessee company.The Bench went on to explain that the DR has merely given a general statement that the companies are paper/shell companies but no concrete evidence is filed on record which could prove the substance in such submissions failing which the issue in hand can be decided only on the basis of documentary evidence available on record. The documentary evidences clearly states that the assessee has explained the nature and source of the alleged sum thereby proving the identity and creditworthiness of the share subscribers and genuineness of the transactions, added the Bench.Hence, the ITAT dismissed the Revenue's appeal and refused to interfere with the detailed finding on facts by the CIT(A) deleting the addition of Rs.7,26,50,000/- made u/s 68 of the Act.Counsel for Appellant/ Revenue: Abhijit Kundu Counsel for Respondent/ Assessee: Somnath Ghosh & Asim PandaCase Title: ITO verses Express Tradelink Pvt. Ltd.Case Number: I.T.A. No. 43/Kol/2021Click here to read/ download the Order

No Addition Warranted U/s 68 Once Taxpayer Has Discharged Identity & Credit-Worthiness Of Subscribers: Kolkata ITAT

Pankaj Bajpai

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