Dispute Under Section 68: ITAT Upholds CIT(A) Deletion of Rs. 4 Crore Share Capital Addition Received via Banking Channels

Headnote:

The case involves a dispute under Section 68 of the Income Tax Act, 1961 regarding share capital and share premium of Rs. 4,00,00,000 received by M/s Livros Publishing Pvt. Ltd. from M/s Apoorva Leasing Finance and Investment Company Ltd. The Assessing Officer (AO) had added this amount to the assessee’s income, alleging failure to prove the identity, creditworthiness, and genuineness of the investor and the transaction. The assessee contended that the investment was legitimate and received through proper banking channels. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, relying on documented evidence of the investor’s corporate status, banking transactions, and absence of direct evidence from the Revenue challenging the genuineness. The Revenue filed appeal before ITAT challenging the CIT(A)’s decision, citing post-search investigation findings implicating the investor as an entry provider. The ITAT examined both sides and dismissed the Revenue’s appeal, confirming the genuineness of the transaction.

Background:

The assessee filed an audited return declaring nil income for AY 2012-13.

The case was selected for scrutiny under CASS and notices were issued under Sections 143(2) and 142(1).

During assessment proceedings, the AO disallowed share capital of Rs. 4,00,00,000 received from M/s Apoorva Leasing Finance and Investment Company Ltd., alleging the assessee failed to prove:

Identity of the investor

Creditworthiness of the investor

Genuineness of the transaction

The AO relied on post-search investigations indicating that the investor was involved in providing accommodation entries.

The assessee presented evidence including audited accounts, share certificates, banking transactions, and MCA records to prove the legitimacy of the transaction.

Court Opinion / Analysis:

1. Identity of Investor: CIT(A) noted that the investor is a limited company, listed on stock exchange, ISO certified, and legally identifiable through PAN and MCA records. AO had no independent evidence challenging this.
2. Creditworthiness: Banking channel transactions showed no cash deposits immediately prior to issue of cheques, contradicting the AO’s presumption. Investor provided explanations regarding credits, which AO did not contest.
3. Genuineness of Transaction: CIT(A) noted the assessee provided transaction details, share allotment records, and banking evidence. AO relied solely on investigation wing’s information without confronting the assessee or providing evidence of misuse of funds. No memorandum of understanding or direct evidence suggested any sham transaction.
4. Revenue’s Grounds: ITAT dismissed Revenue’s grounds, as no documentary evidence disproving banking transactions or genuineness of investment was produced.

Conclusion: The ITAT upheld CIT(A)’s order deleting the addition of Rs. 4,00,00,000 under Section 68.

Provision of Law:

1. Section 68, Income Tax Act, 1961: Deals with unexplained cash credits, share application money, or other amounts where assessee must prove identity, creditworthiness of the investor, and genuineness of the transaction.

Appellant (Revenue): Income Tax Officer, Ward-1(2)(4), Meerut

Respondent (Assessee): M/s Livros Publishing Pvt. Ltd., Meerut

Assessee’s Representatives: Shri Lalit Mohan, Adv. & Shri Ankit Kumar, CA

Department Representative: Ms. Harpreet Kaur Hansra, Sr. DR

Outcome: Revenue appeal dismissed; addition under Section 68 not sustained