Receipt of share capital with higher premium cannot be added as unexplained credit on mere suspicion

ITO Vs M/s Anjali Millenium Tours Travels Pvt. Ltd. (ITAT Mumbai)

Conclusion:  AO, having accepted the fact that identity of subscribers had been proved, could not have proceeded to make addition only on the basis of charging higher premium, because charging higher premium on issue of shares was a decision between parties and AO would not have any role to play as long as genuineness of transaction was not in doubt. Therefore, addition on mere suspicion under section 68 could not be sustained.

Held: AO had made addition under section 68 towards share capital received from 5 companies, basically on the ground that although identity of subscribers had been proved, but the transaction between parties did not pass the test of genuineness as assessee had not justified charging of higher premium on shares without there being any corresponding business activity to justify projections and estimates relied upon for arriving at a share premium. It was held assessee had filed complete details in respect of 5 parties including their names and addresses, PAN, income-tax returns, copies of financial statements, bank statements, letter of allotment, etc. In fact all 5 parties had replied to notices issued u/s 133(6) alongwith whatever details sought by the AO. AO failed to make out a case of credit, which fell within the ambit of provisions of section 68, except doubting genuineness of transactions on suspicion and surmise only for the reason of charging higher premium on shares. Once assessee discharged its initial burden cast upon under 68 by filing necessary evidences, then the burden shifted to AO to prove otherwise. In this case, the AO, except doubting genuineness of transaction for charging higher premium on shares, did not bring on record any other evidence to disprove the voluminous evidences filed by assessee in respect of 5 companies to prove identity and genuineness of transactions. In fact, assessee had filed complete set of documents for all 5 subscribers. The parties have responded to notices u/s 133(6) by filing necessary evidences. Therefore, merely for the reason that the parties did not appear before AO or the assessee could not produce the parties in person before AO, the whole set of documents produced to prove the identity and genuineness of transactions, could not be disregarded. When  AO did not have anything more than suspicion in his possession to doubt the transactions, he erred in bringing to tax share capital received from 5 companies u/s 68  as unexplained credit.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal filed by the Revenue is directed against the order of Ld. CIT(Appeal)- 16, Mumbai, dated 30/05/2017 and it pertains to AY 2012/13. The Revenue has raised the following grounds of appeal:-

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