No Section 68 Addition If Taxpayer Proves Share Subscribers’ Genuineness & Creditworthiness

ITO Vs Design Deal Fashions Pvt. Ltd. (ITAT Mumbai)

ITAT deletes addition made by AO of Rs. 80 Lakh against Sharee Capital Infusion of Mere Rs. 50000

The assessee argued that the Rs. 80 lakhs listed as share capital was actually invested in previous years and should not be added under section 68 of the Act. Despite the AO’s report from the Investigation Wing indicating share application money received, the assessee maintained that it had not received any such funds during the relevant financial year. The AO’s decision to add Rs. 80 lakhs was based on the alleged control of these entities by Shri Pravin Kumar Jain. However, the Ld. CIT(A) found that the share capital was not received during the relevant year. The AR presented the balance sheet showing only a Rs. 50,000 addition to share capital for the relevant year. Thus, the AO’s decision to add Rs. 80 lakhs without proper consideration was deemed erroneous. The Ld. CIT(A) correctly noted that the alleged share capital was not infused during the relevant year, leading to the deletion of the addition, a decision confirmed by the ITAT.

No Section 68 Addition If Taxpayer Proves Share Subscribers’ Genuineness & Creditworthiness    

The documents submitted by the assessee included the names, PAN details, and addresses of all nine lenders, along with their tax return filings, demonstrating their genuineness. These lenders had sufficient financial capacity to provide the loans, as evidenced by their own reserves and surplus capital. Additionally, the bank statements highlighted the loan transactions, and all parties responded to notices from the AO and confirmed the loan transactions. Despite the lenders not appearing before the AO, this alone could not justify adverse views against the assessee. The AO’s reliance on a statement made during a search conducted on another party, without providing the opportunity for cross-examination, was deemed unacceptable by the ITAT. The nature of the receipt as an unsecured loan was supported by evidence of the lenders’ identities, their tax filings, and their financial capacity, as well as the transaction’s traceability through banking channels. The AO failed to find any fault in the evidence provided by the assessee, leading the ITAT to uphold the deletion of the Rs. 1.80 crore addition by the Ld. CIT(A).

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