Addition not justified for lower income declaration by Investors in their Tax return

ACIT Vs Supreme Placement Services (P) Ltd. (ITAT Delhi)

Conclusion: Addition on account of unexplained share capital/premium was not justified as AO merely doubted the financial capacity of the Investors because they had reported low income in their return of income. This could not be the sole basis to doubt the explanation of assessee. It might be suspicion of the AO only without bringing any evidence on record.

Held: A search under section 132 was conducted in Bhushan Steel Group of cases on 03.03.20. The case of assessee was centralized with this case. Assessee attended the proceedings and filed necessary details before AO for completion of the assessment. AO noted the relevant facts/circumstances leading to the search in the Bhushan Steel Group of cases. During enquiries by the Income Tax Department, it was noticed that the flagship company of the Group Bhushan Steel Limited had introduced a substantial amount of money into its books as share application money. This money was routed through number of group companies and by a series of transactions before reaching Bhushan Steel Limited. The last line of companies from which this amount originated were found to be companies with meager resources and small turnovers. Assessee-company happened to be one such company. On perusal of the return of income and other details submitted, AO noticed that assessee company had invested a substantial amount of money into M/s. Bhushan Steel Limited. The balance-sheet of assessee company revealed that assessee-company had raised this money through share capital/share premium received during assessment year under appeal. During the course of assessment proceedings, assessee was asked to furnish the details of share premium and share capital received during F.Y. 2007-2008. In response to the same, assessee submitted the details of increase in share capital/share premium during assessment year under appeal. AO observed that all the Investors were based out in Kolkata and it was beyond the limit of human reasonableness that these Companies would invest such a large amount in the assessee company. All the companies invested in the assessee did not have any significant income and their source of fund was share premium and share capital. AO, therefore, noted that the creditworthiness of the creditors had not been established and the genuineness of the transactions was also in doubt. AO accordingly made an addition of Rs.4.96 crores on account of unexplained share capital/premium. It was held that AO merely doubted the financial capacity of the Investors because they had reported low income in their return of income. This could not be the sole basis to doubt the explanation of assessee. It might be suspicion of the AO only without bringing any evidence on record. Rather the documentary evidences produced on record clearly support the explanation of assessee. Therefore, the issue was covered in favour of assessee by the Judgment of Hon’ble Delhi High Court in the case of M/s. Adamine Construction Pvt., Ltd.,.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal by Revenue has been directed against the Order of the Ld. CIT(A)-1, New Delhi, Dated 25.07.20 13, for the A.Y. 2008-2009, on the following grounds :

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