2020 (2) TMI 1224 - ITAT DELHI

Addition u/s 68 - addition on account of share capital - No query to the directors of the investor companies - HELD THAT:- When the redeemable preferential shares have been redeemed to the investor companies in subsequent years which is much prior to the search, therefore, these investments are genuine. We further find from the various pages of the paper book that in response to the notice issued u/s 133(6) to the investor companies, the directors of the respective investor companies appeared before the AO whose statements were recorded u/s 131 and they have confirmed to have invested in the shares of the assessee company. Not a single question was put to any of the directors of these investor companies as to why they have invested crores of rupees in a non-listed company without any return.

We, therefore, find merit in the argument of assessee that without discharging the onus cast on the AO by not putting a single query to the directors of the investor companies who appeared before him in response to notice u/s 133(6) and whose statements were recorded u/s 131 on oath, the AO cannot make an allegation in the assessment order as to why they have invested in such non-descript company.

So far as the allegation of the AO that the bank account show back to back entries is concerned, we find merit in the argument of the ld. Counsel that the investor companies have withdrawn money from companies where funds were invested earlier and they invested money in the assessee company in the shape of preference shares and, therefore, this prudent financial planning should not be viewed adversely and, rather, it supports the case of the assessee that there was source of funds invested by the investor company in the shares of the assessee company. We further find the various inferences/statements/materials which were the basis for the addition by the AO were never confronted to the assessee before being used by the AO against the assessee.

From the various details furnished by the assessee, we find the assessee, in the instant case, has discharged the onus cast on it by producing the directors of the investor companies whose statements were recorded and who have admitted to have invested in the assessee company. The directors have explained the source of such investment by producing relevant details such as bank statements, copy of the income-tax returns, audited accounts of the investor companies, etc. to substantiate the identity and credit worthiness of the loan creditor and genuineness of the loan transaction. Further, the amounts have subsequently been refunded to the investor companies during F.Y. 2014-15 which is much prior to the date of search.

We find, under somewhat identical circumstances, the Kolkata Bench of the Tribunal in the case of M/s Baba Bhootnath Trade & Commerce Ltd. [2019 (4) TMI 1297 - ITAT KOLKATA] has deleted the addition made by the AO

In the instant case, when the assessee has substantiated the three ingredients of section 68 of the IT Act and moreover, such amount has been refunded to the investor companies in subsequent years which is much prior to the date of search.

We are of the considered opinion that the addition made by the AO and sustained by the CIT(A) is not justified. Accordingly, we direct the AO to delete the addition made by him u/s 68 of the Act for both the years. - Decided in favour of assessee.