Production of directors not mandatory to prove genuineness of transaction; Deletes commission addition: ITAT Delhi
B & B Sharecom Pvt. Ltd. Vs DCIT, ITA No. 2877/DEL/2024
Facts:
1. During the year, between 24.02.2016 and 19.03.2016, the assessee issued 80,00,000 equity shares of Rs. 10 each, aggregating to Rs. 8,00,00,000. These were subscribed by three companies, namely M/s JA Infracon Pvt. Ltd. (JAIPL), M/s Adila Traders Pvt. Ltd. (ADPL) and M/s Sonal Styles Pvt. Ltd. (SSPL).
2. No share premium was involved in these transactions. In the course of assessment proceedings, notices under sections 143(2) and 142(1) were issued. The assessee filed complete material electronically, including the income-tax returns and audited financial statements of the investor companies, confirmations, bank statements and affidavits of directors to establish identity, creditworthiness and genuineness.
3. However, notices issued by the AO under section 133(6) to the investor companies were returned unserved with the remark “left.” A show-cause notice dated 30.11.2018 was issued to the assessee, and summons were issued to the directors of the investor companies. These directors, being located in Ahmedabad, Mumbai and Thane, could not be produced at such short notice of only two days. A departmental inspector reported that the companies were not traceable at the given addresses.
4. The AO concluded that the identity, creditworthiness and genuineness of the share capital had not been proved. According to him, the investor companies had negligible income, low bank balances and funds which were received and transferred immediately by RTGS to the assessee. He also noted that no dividends had been paid.
5. On this basis, the AO treated the share capital of Rs. 8,00,00,000 as unexplained under section 68 and further presumed commission of 2% amounting to Rs. 16,00,000 as unexplained expenditure. Thus, a total addition of Rs. 8,16,00,000 was made.
ITAT Delhi held as below:
1. The assessee had produced confirmations, income tax returns, audited financial statements, affidavits of directors and bank statements of all three investor companies.
2. All payments were made through proper banking channels by way of RTGS. The companies were existing entities filing regular returns, which established their identity.
3. The fact that they had low income or low bank balances could not, by itself, disprove creditworthiness when funds were routed through banks and supported by audited accounts.
4. It was also observed that the Assessing Officer gave only two days’ notice to produce the directors, which was impractical, and their absence could not negate the genuineness of the documents already on record.
5. Since no share premium was involved, suspicion of sham transactions was unfounded.
6. It is therefore held that the assessee had proved identity, creditworthiness, and genuineness, and the addition under Section 68 was not justified.
The copy of the order is as under:
