No Section 68 addition when identity, creditworthiness & genuineness of investors established

Kuna Impex Pvt. Ltd. Vs DCIT (ITAT Ahmedabad)

The assessee, Kuna Impex Pvt Ltd, filed a return of income for the assessment year 2011-2012, declaring a total income of Rs. 33,47,310. The tax department received information that the assessee company had received share premiums and share application money totalling Rs. 27,16,350 during the financial year 2010-2011. The Assessing Officer (AO) initiated reassessment proceedings, believing that the assessee company had introduced its own undisclosed income in the garb of high share premiums. During the assessment proceedings, the assessee furnished the names of the shareholders who had been allotted shares, but both individuals failed to respond to notices from the AO.

The AO added the total share premium of Rs. 27,16,350 to the assessee’s total income, treating it as unexplained income under Section 68 of the Income Tax Act. The assessee appealed to the Commissioner of Income Tax Appeals (CIT A), submitting that the requisite Form 2 related to the allotment of shares had been filed with the Registrar of Companies (ROC).The assessee also provided details of the shareholders, including PAN cards, passports, bank statements, and proof of payment of the share application money through account payee cheques. The assessee explained that one of the shareholders, Shri Ghanshyambhai, was a friend who had suggested new business proposals and shown interest in joining the company. He was appointed as a director, and the share premium was decided based on the planned growth of the company. The other shareholder, Mr. Vedprakash Naithani, was a promoter director of the company who had regularly filed income tax returns for 25 years. The CIT A dismissed the assessee’s appeal, stating that the assessee had not provided a precise working computation for determining the share premium received from the shareholders. The assessee then appealed to the ITAT, arguing that they had furnished all details regarding the identity and genuineness of the shareholders and that there was no allegation that the money involved was the assessee’s own unaccounted funds.

Judgment:

– The ITAT allowed the assessee’s appeal, holding that the assessee had provided sufficient details regarding the identity and creditworthiness of the shareholders.

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