Section 68 Addition Unsustainable Where Identity and Creditworthiness Are Proven: ITAT New Delhi

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) on 5 June held that an addition under Section 68 of the Income Tax Act cannot be sustained merely because share subscribers disclosed relatively low income in their income tax returns, where the taxpayer establishes their identity, creditworthiness, and the genuineness of the transactions.

Judicial Member Raj Kumar Chauhan and Accountant Member Renu Jauhari dismissed the Revenue's appeal and upheld the Commissioner (Appeals)' decision deleting a Rs. 3 crore addition made against ANR International Pvt. Ltd. for Assessment Year 2017-18. The Bench held:

“...there was no obligation upon the assessee to establish the source of the source and there was nothing to prevent the Assessing Officer or the Revenue to examine the source of the source of the subscribers.”

ANR International Pvt. Ltd., engaged in the import and trading of chemicals and earning commission as a consignment agent, issued shares worth Rs. 1 crore at a premium of Rs. 2 crore during the relevant assessment year. It received the share capital and premium from three investors: Ritika Chhawchharia, Anup Kumar HUF, and Rishu Agencies Pvt. Ltd.

During the assessment proceedings, the Assessing Officer questioned the investors' creditworthiness on the ground that the income disclosed in their returns did not match the amount invested. The Assessing Officer consequently added the entire Rs. 3 crore received towards share capital and premium as unexplained cash credit under Section 68.

Before the Commissioner (Appeals), ANR International produced additional evidence, including the investors' balance sheets, bank statements, and income tax records. After admitting the evidence under Rule 46A and considering the remand report, the Commissioner deleted the addition, finding that the investors possessed sufficient net worth and that the Assessing Officer had focused only on the income disclosed during the relevant year.

The Tribunal affirmed the deletion. It noted that the Revenue did not dispute the identity of the investors or the genuineness of the transactions and challenged only their creditworthiness based on the income reflected in their returns.

Relying on the Delhi High Court's decisions in Goodview Trading Pvt. Ltd. and Vrindavan Farms (P) Ltd., the Bench held that the taxpayer had discharged its initial burden by producing documentary evidence relating to the investors.

It further held that the additional evidence admitted by the Commissioner (Appeals) sufficiently established the creditworthiness of all three subscribers. It observed that the Assessing Officer relied solely on figures reflected in the income tax returns and failed to conduct any meaningful inquiry into the investors' financial capacity.

Holding that the ANR International had successfully proved the identity and creditworthiness of the investors and the genuineness of the transactions, the Bench held that the addition under Section 68 could not stand.

Accordingly, the ITAT dismissed the Revenue's appeal.