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2023 (2) TMI 1207 - AT - Income TaxUnexplained capital introduction u/s. 68 - unexplained credit of share capital & premium - non-declaration of dividend - onus to prove - HELD THAT:- The provisions of Section 68 fasten the liability on the assessee to provide the identity of the lenders/creditor/investor, establish the genuineness of the transactions and creditworthiness of the lenders/creditor/investor. These liabilities on the assessee were imposed to justify the cash credit entries under Section 68 in the case of CIT Vs. Precision Finance (P) Ltd.[1993 (6) TMI 17 - CALCUTTA HIGH COURT] as held it was for the assessee to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. On the facts of this case, the Tribunal did not take into account all these ingredients which had to be satisfied by the assessee. Mere furnishing of the particulars was not enough. As discussed in present case we note assessee company was formed during the year under consideration by taking running business of proprietary concern of promoter Shri Ramgopal Maheshwari. There were 8 parties who have given advance to the impugned proprietary concern which was converted into share capital on formation of assessee company. In case of Shri Ramgopal Maheshwari, the assessment u/s 153A was framed for the A.Y. 2010-11 and 2011-12 where genuineness of loan credit was examined and accepted by the AO. Therefore, in our considered view once the credit of such loan credit in erstwhile proprietary concern was accepted, then the conversion of such loan credit into share capital and premium thereon on subsequent occasion cannot be doubted. Coming the credit of share capital and premium thereon from the remaining parties, we find that during the assessment proceedings details such as name of investor, there address, copy PAN, ITR, share allotment letter etc were furnished. AO issued notices u/s 133(6)/131(1) for verification. AO recorded finding that in the second attempt the investors made reply in response to notices issued to them. Each and every queries raised by the AO were answered/ furnished along with necessary documents. However, the AO without pointing any deficiency in the above primary document held that the assessee failed to explain the genuineness of the credit of share capital for the reason that the physical share certificates were not issued to the investors, charging of premium was not justified satisfactory and there was no dividend issued. The entire thrust of the Revenue for treating share capital shown by the assessee as unexplained cash credit u/s 68 is misplaced. It is for the reason that the fact that the physical share certificate issued to the shareholders were lying with the assessee cannot replace the other documentary evidences, as discussed above, filed by the assessee during the assessment proceedings. It is equally important to note that it was the 1st year of operation of the assessee company and that might be the reason for not declaring the dividend. Moreover, the declaration of the dividend by the company has nothing to do with the share capital received by the assessee - no adverse inference can be drawn against the assessee in the event of non-declaration of dividend in the year under consideration. Decided in favour of assessee. Estimation of income - bogus purchases - rate of profit should be adopted on the URD purchases from the unregistered parties - addition made on purchases form unregistered dealer from @6% - CIT(A) restricted addition to 0.24% - HELD THAT:- In the present case, the AO, has estimated the gross profit on such URD purchases at the rate of 6% and if the basis of the AO is considered or presumed to be true then the profit which has already been disclosed by the assessee i.e. 5.76%, the benefit of the same should be allowed. Rate at which purchase from the grey market was shown by the assessee cannot be relied upon as gospel truth in the absence of the facts noticed by the AO which have been elaborately discussed in the preceding paragraph. Thus, it is justifiable to add some margin to the taxable income of the assessee on account of such purchases from the unregistered parties. In the present case, difference between the estimated profit determined by the AO on such URD purchases viz a viz the gross profit declared by the assessee, is liable to be added as income of the assessee in the given facts and circumstances. Hence, we do not find any infirmity in the order of the learned CIT(A). Decided against revenue.
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