ITAT deletes addition made u/s 68 where the source of fund is not doubted by the Assessing Officer

The brief facts of the case is that the assessee is a company formed by IITian i.e. Mr. Puneet Kumar for developing gaming machines as a startup company along with the founder of “Indiagames” Mr. Vishal Gondal i.e. Sweat & Blood Ventures Group. Out of 5000 shares, 4999 equity shares of Rs. 10/- and one equity share of Rs. 10/- each were alloted and fully paid to M/s Sweat & Blood Ventures Group and Mr. Puneet Kumar respectively. Thereafter, in view of the prospectus of entering into designing and manufacturing arcade gaming machines, the assessee company valued its shares at ₹1080.84 as on 31.03.2011. In view of the valuation, the company further invited share capital along with share premium from various entities. The Assessing Officer during scrutiny proceedings asked the assessee to justify the premium charged during the year. According to the Assessing Officer, the assessee- company was a loss-making company from the very first year of the operation and such a huge premium was unscientific and unjustified. The Assessing Officer further observed that the share premium collected was parked in the time deposits and was not utilized for business purposes and objects of the share premium received. The Assessing Officer was of the view that accumulated profits of the assessee-company were brought back in the price of the share premium, therefore, in view of the provision of section 68 of the Income Tax Act, 1961 (the Act), he treated the entire value of the share along with share premium of Rs. 1,99,99,816/- as unexplained cash credit u/s 68 of the Act.

On further appeal, the Ld. CIT(A) deleted the addition observing that the Assessing Officer has not disputed the source of the funds and only raised doubts on the justification of the share premium. Aggrieved, the Revenue is before the Tribunal raising the grounds as reproduced above.

ITAT observed that the Assessing Officer has mainly doubted the share premium received by the company. Further, it observed that the company has been found by fresh IIT graduates as a startup company looking to the future potential in online gaming business. The Assessing Officer has given categorically finding that the source of fund was not doubted. The Ld. CIT(A) has also considered the decision of the Hon’ble Bombay High Court in the case of Major Metal Ltd. v. UOI WP No. 397 of 2011 whetein the addition was sustained on the ground that genuineness of the transaction was not proved and creditworthiness of the creditor was also not proved whereas, in the present case the Assessing Officer has accepted nature and source of funds. In our opinion, when the source of fund is not doubted by the Assessing Officer then he is not justified in making addition in terms of section 68 of the Act. Any addition for receipt of share premium having value more than the market value of the shares could be made in terms of section 56(2) of the Act and not u/s 68 of the Act. The Ld. CIT(A) has passed a reasoned order and accordingly, ground raised by the Revenue is deleted.

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