Identity and creditworthiness of shareholder proved, addition u/s 68 not Justified

Identity and creditworthiness of shareholder proved, addition u/s 68 not Justified

Gomti Exim Pvt. Ltd. Vs. ITO (ITAT Delhi), ITA NO. 5383 /DEL/2010 [Assessment Year: 2006-07] Date of Pronouncement: 12.06.2015

Brief Facts:

The facts of the case in brief are that the assessee filed e-return of Income on 28.11.2006 declaring nil income which was processed u/s 143(1) of the Income Tax Act, 1961(hereinafter referred to as the Act) and thereafter the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had raised share capital including share premium amounting to Rs. 10,00,000/- from Shri Vinod Kumar and Rs. 6,50,000/- from Shri Jasbir Singh. The AO asked the assessee to furnish the confirmation and the sources of investment made by the above mentioned two share holders. He also asked to produce the aforesaid persons to verify the veracity of the transactions. In response the assessee produced both the persons on 5.12.2008. The AO observed that Shri Jasbir Singh was was able to substantiate his sources of investment from sale proceeds of agricultural land but Shri Vinod Kumar could not do so. The AO further observed that the statement of Shri Vinod Kumar was also recorded in which he explained that he made the investment out of his past savings from agricultural activities and out of refund of cash loan given to Shri Jasbir Singh alias Pappu. Shri Vinod Kumar in his statement also stated that he owned approximately 40 bighas of land, however, papers were not available with him since those were mortgaged in was connection with a tractor loan. The AO observed that Shri Vinod Kumar could not explain the exigency under which he had to apply for bank loan specially when a sum of Rs. 10,00,000/- in cash was available with him. He further observed that copy of the Khasra Khatoni of agricultural land at Village Nathupur the names mentioned were Shri Sardare, Shri Tare and Shri Umed Singh as owner of agricultural land and the name of Shri Vinod Kumar was not amongst the co-owners of the land. The AO pointed out that the assessee produced an agreement on the blank paper which revealed that Shri Jasbir Singh of Village Nathupur had refunded and an old cash loan to Shri Vinod Kumar, however, he did not find merit in the submission of the assessee and added Rs. 10,00,000/- to its income by considering the same as unexplained credits u/s 68 of the Act.

Assessee Contention :

The assessee submitted that he produced following evidences before the AO to prove the identity and creditworthiness of Shri Vinod Kumar :-

“(i) Copy of Share Application received from Mr. Vinod Kumar

(ii) Copy of Shares Certificate of shares Allotted to him

(iii) Copy of confirmation received from him

(iv) Copy of Annual Return and Form 2 filed before the Registrar of Companies

(v) Various documents related to assets owned by him, Identity Card.”

It was further submitted that the assessee produced the person who confirmed the amount of contribution to the assessee. It was also stated that the assessee produced various papers related to land and other assets owned by Shri Vinod Kumar which could establish his creditworthiness and to prove the genuineness of the transaction it was necessary to prove the identity and creditworthiness of the creditor. It was submitted that the AO specifically mentioned in his order that Shri Vinod Kumar appeared before him and produced details of assets owned by him. Therefore, assessee discharged the onus cast upon him. It was prayed that the addition of Rs. 10,00,000/- made by the AO may be deleted. Reliance was placed on the following case laws :-

1. CIT vs. M/s Lovely Exports Pvt. Ltd. 216 CTR 195
2. CIT vs. Steller Investment Ltd. 251 ITR 263 (SC)
3. CIT vs. Sophia Finance Ltd. 205 ITR 98 (Del)
4. CIT vs. Achal Investment Ltd. 268 ITR 211 (Del)
5. CIT vs. M/s Divine Leasing & Finance Ltd. (299 ITR 268)
6. CIT vs. Sumati Dayal 214 ITR 801 (SC)

Revenue Contention :

The Ld. CIT(A) after considering the submissions of the assessee observed that Shri Vinod Kumar was not assessed to tax and did not have a PAN. He further observed that Shri Vinod Kumar could not produce any evidence with regard to the source of income for his creditworthiness and that the mode of payment regarding his claim of agricultural income was not furnished before the AO. The ld. C.I.T.(A) also observed that the assessee could not submit either the copy of Khasra, Khatauni or any receipt of agricultural produce and that the genuineness of the transaction was in doubt since the payment was not made through banking channel but was made in cash. The Ld. CIT(A) also mentioned that the case laws relied by the assessee were not applicable to the present case. Accordingly the addition made by the AO on account of share capital of Rs. 10 lac received from Sh. Vinod Kumar was sustained.

Court Order

In the present case, the main objection of the AO was that in khasra khatauni, the name of the assessee was not appearing as the owner of land. In this regard the explanation of assessee was that the name of his father Shri Umed Singh was appearing in khasra khatauni which is placed on page no. 43 of the assessee’s paper book which clearly established the ownership of land. It is also noticed that the assessee furnished copies of “J” froms in the name of Shri Vinod Kumar which clearly established that he sold the agricultural produce to M/s. Rameshwer Dayal Prem Chand Aadhti, Sonepat Mandi, copies of the same are placed at page no. 37 to 43 of the assessee’s paper book. In the present case, it is noticed that the assessee received a sum of Rs. 5,00,000/- from Shri Jasbir Singh to whom the said amount was given as an advance to purchase the land which is evident from page no. 44 of the assessee’s paper book which clearly shows that the advance money given to Shri Jasbir Singh was taken back by Shri Vinod Kumar on 25.12.2005. Both the parties affixed their signature on the above said document which is witnessed by Shri Ajay Kumar son of Shri Jagdish and Shri Jagdish Son of Shri Raj Kumar.

From the above facts, it is clear that Shri Vinod Kumar was a man of means, his creditworthiness was proved and the identity was not in doubt since the assessee produced Shri Vinod Kumar before the AO who recorded his statement wherein the investment in the shares was admitted, copy of the share certificate, is placed at page no. 36 of the assessee’s paper book which revealed that 10,000 shares having destructive nos. 16,501 to 26,500 were allotted to Shri Vinod Kumar vide certificate no. 22, therefore, the genuineness of transaction can also not be doubted. From the above facts, it is clear that the asseseee proved the identity and creditworthiness of Shri Vinod Kumar as well as the genuineness of transactions amounting to Rs. 10,00,000/-, therefore, the addition made by the AO and sustained by the ld. CIT(A) was not justified, accordingly the same is deleted.

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