Section 68 Addition Deleted Where Investors Duly Verified by AO

Assessee company had received the amount of Rs 5.53 crore from share capital and share premium in the AY 2012-13. The assessment was made after selecting the case for scrutiny on account of substantial receipt of share premium. In the course of assessment, considerable evidence was provided by the assessee in terms of PAN card, bank statement, return of income, accounting record, confirmation and corporate record of all shareholders.

On the other hand, the AO took the view that the share capital would be considered to be an unexplained cash credit within the ambit of Section 68, as the directors of the investors’ company did not turn up in response to the summons served under Section 131. This addition was deleted by the CIT(A) while holding that the onus was sufficiently discharged by the assessee.

Issue Before Court: Whether share capital/premium can be treated as unexplained under Section 68 merely for non-appearance of investor directors despite documentary proof of identity, creditworthiness, and genuineness?

Tribunal Decided: 

The decision of the ITAT was in agreement with the orders passed by the CIT(A). The Revenue’s appeal was dismissed by the Tribunal. It was noted that the assessee had fulfilled its primary obligation by submitting all the necessary documents, such as PAN, ITRs, bank statements, audited accounts, confirmation, and incorporation of the investors. Furthermore, the investors had given their responses against the notices raised against them under section 133(6) of the Act. It was found that the Assessing Officer did not make any attempt to conduct an inquiry or point out any defect in the evidence.

It was only because the summons issued was not complied with by the directors, and thus the provisions of section 68 cannot apply in the given case. Furthermore, the ITAT observed that there was no claim of fraud or existence of the investor companies, nor any indication that the assessee used the investment companies to launder its own income. Following well-established case law, it was determined that the absence of appearance of directors, particularly for many years, does not warrant ignoring credible documentary evidence. Consequently, the deletion of the addition of Rs.5.53 crore under Section 68 was upheld.

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