2025 (7) TMI 829 - HC - Income Tax

Addition u/s 68 - unexplained share capital and share premium received from five share applicants - ITAT deleted addition - HELD THAT - Tribunal has recorded a factual finding that the identity of the share applicant companies cannot be disputed. As examined the creditworthiness of the share applicant companies for which the Tribunal perused the financial statement of all the five companies and found that all the five companies had sufficient funds and the amount which was invested in the purchase of shares was negligible compared to their creditworthiness. Therefore the Tribunal was satisfied about creditworthiness of all the share applicant companies. While doing so the Tribunal also found that the identity of the share applicant companies and the genuineness of the transaction also cannot be disputed. Furthermore in respect of the assessment made on the five share applicant companies were of scrutiny assessment u/s 143(3) of the Act and those remained intact. Source of share application money which has been received by the assessee has already been taxed in the hands of the share applicants and therefore it was held taxing the same amount in the hands of the assessee would tantamount to double addition. Reference was made to the decision of Mahaveer Kumar Jain 2018 (4) TMI 1078 - SUPREME COURT That apart Tribunal also took note of the decision of this court in the case of PCIT vs. Sreeleathers 2022 (7) TMI 747 - CALCUTTA HIGH COURT Thus appeal filed by the assessee was rightly allowed by Tribunal. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Court considered the following core legal questions raised by the Revenue in its appeal under Section 260A of the Income Tax Act, 1961:

(a) Whether the Income Tax Appellate Tribunal ("the Tribunal") erred in law by admitting, accepting, and relying upon a share valuation certificate dated December 16, 2022, which was not produced before the Assessing Officer (AO), Commissioner of Income Tax (Appeals) [CIT(A)], the Tribunal earlier, or before the High Court, and whether such valuation was flawed, erroneous, and unreliable;

(b) Whether the Tribunal was justified in law in deleting the addition of Rs. 4,78,50,000/- on account of share capital and share premium in the absence of proof regarding the identity of the creditors, genuineness, and creditworthiness of the transactions;

(c) Whether the Tribunal failed to follow binding judicial principles laid down in an earlier decision of the High Court in Pr. CIT2, Kolkata (C)-2, Kolkata Vs M/s BST Infratech Ltd. (2024), which had precedence value;

(d) Whether the Tribunal erred in law by not considering judicial principles laid down in Pr. CIT Vs. Swati Bajaj (2022), where the High Court laid down guidelines on the manner in which allegations against the assessee must be considered.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Admissibility and Reliance on Share Valuation Certificate

Legal Framework and Precedents: The valuation of shares for determining the genuineness and fair value of share capital and premium is a critical aspect under the Income Tax Act, particularly when additions are made under Section 68 for unexplained share capital. The principles of admissibility of evidence, especially valuation reports, require that such evidence be produced before the AO or CIT(A) and be subject to scrutiny at all appellate levels.

Court's Interpretation and Reasoning: The Court noted the Revenue's contention that the valuation certificate dated December 16, 2022, was not produced before the AO, CIT(A), or the Tribunal previously and was therefore inadmissible. However, the Court found that the Tribunal had undertaken a thorough fact-finding exercise and had relied on a broad range of documents and evidence beyond the valuation certificate alone. The Court did not find merit in the Revenue's submission that the valuation certificate was flawed or unreliable, as the Tribunal's findings were based on a holistic examination of facts.

Key Evidence and Findings: The Tribunal examined the financial statements and documents relating to the share applicants and found their creditworthiness and genuineness of transactions to be satisfactory. The valuation certificate was only a part of the evidence considered.

Application of Law to Facts: The Court held that the Tribunal's acceptance of the valuation certificate, despite its late production, did not vitiate the order since the Tribunal had independently verified the identity, creditworthiness, and genuineness of the share applicants through other documentary evidence.

Treatment of Competing Arguments: The Revenue's objection on procedural grounds was outweighed by the substantive examination of facts by the Tribunal.

Conclusion: No illegality or error was found in the Tribunal's reliance on the valuation certificate in the context of the entire evidence.

Issue (b): Deletion of Addition of Rs. 4,78,50,000/- on Account of Share Capital and Premium

Legal Framework and Precedents: Additions under Section 68 require the Revenue to establish that the share capital or premium received is unexplained, and the identity, creditworthiness, and genuineness of the share applicants are doubtful. The Supreme Court decisions in Kale Khan Mohammad Hanif vs. CIT (1963) and Roshan-Di-Hatti vs. CIT (1977) lay down principles for such inquiries, emphasizing the need for the Revenue to prove the source and genuineness of funds beyond reasonable doubt.

Court's Interpretation and Reasoning: The Tribunal examined the identity and creditworthiness of the five share applicant companies by reviewing their financial statements and found that each had sufficient funds and the amounts invested were negligible in comparison. The Tribunal also noted that the share applicants had undergone scrutiny assessments under Section 143(3), which remained undisputed.

Key Evidence and Findings: The Tribunal found that the identity of the share applicants was not in dispute, the transactions were genuine, and the source of funds was already taxed in the hands of the share applicants. The Tribunal relied on the Supreme Court decision in Mahaveer Kumar Jain vs. CIT (2018), which held that taxing the same amount twice would be impermissible.

Application of Law to Facts: The Court found that the Tribunal correctly applied the principles from the Supreme Court and High Court precedents to the facts, resulting in the deletion of the addition made under Section 68.

Treatment of Competing Arguments: The Revenue's argument regarding the absence of proof of identity and creditworthiness was rejected based on the documentary evidence and prior scrutiny assessments.

Conclusion: The deletion of the addition was upheld as justified and based on sound legal and factual grounds.

Issue (c): Non-application of Judicial Principles from Earlier High Court Decision in BST Infratech Ltd.

Legal Framework and Precedents: The principle of judicial precedent requires that earlier decisions of the same High Court on similar issues be followed unless distinguished on facts or overruled. The Revenue contended that the Tribunal failed to apply the principles laid down in the BST Infratech Ltd. case (2024), which had precedence.

Court's Interpretation and Reasoning: The Court observed that the Tribunal had undertaken a detailed fact-finding exercise and had applied the relevant principles from Supreme Court and High Court decisions, including those cited by the Revenue. The Court did not find any failure on the part of the Tribunal to consider or apply binding precedents.

Key Evidence and Findings: The Tribunal's order reflected a careful analysis of identity, creditworthiness, and genuineness, consistent with judicial guidelines.

Application of Law to Facts: The Court held that the Tribunal's approach was consistent with judicial precedent and that no error arose from alleged non-application of the BST Infratech Ltd. decision.

Treatment of Competing Arguments: The Revenue's submission was considered but found unsubstantiated.

Conclusion: No legal infirmity was found in the Tribunal's application of judicial principles.

Issue (d): Non-consideration of Judicial Principles from Pr. CIT Vs. Swati Bajaj

Legal Framework and Precedents: The Swati Bajaj decision (2022) laid down guidelines on the manner in which allegations against the assessee must be considered, emphasizing fairness and procedural propriety.

Court's Interpretation and Reasoning: The Court noted that the Tribunal had adhered to principles of natural justice and had conducted a detailed examination of the evidence and allegations. The Tribunal's approach was consistent with the guidelines laid down in Swati Bajaj.

Key Evidence and Findings: The Tribunal's order showed that allegations were considered carefully and the assessee was given an opportunity to present evidence.

Application of Law to Facts: The Court found no omission or error in the Tribunal's consideration of the allegations as per the judicial guidelines.

Treatment of Competing Arguments: The Revenue's claim of non-consideration was rejected.

Conclusion: The Tribunal complied with judicial principles governing allegations against the assessee.

3. SIGNIFICANT HOLDINGS

The Court concluded that the appeal filed by the Revenue lacked merit and dismissed the same, holding that no substantial question of law arose for consideration. The following core principles and determinations were established:

"The identity of the share applicant companies cannot be disputed."

"The creditworthiness of all the five companies was found sufficient, and the amount invested was negligible compared to their financial strength."

"The genuineness of the transactions cannot be doubted as the source of share application money has already been taxed in the hands of the share applicants, and taxing the same amount again would amount to double addition."

"The Tribunal's reliance on the valuation certificate, despite its late production, did not vitiate the order as it was part of a comprehensive factual examination."

"The Tribunal correctly applied the principles laid down by the Hon'ble Supreme Court in Kale Khan Mohammad Hanif vs. CIT and Roshan-Di-Hatti vs. CIT, and the decisions of this Court in Mahaveer Kumar Jain vs. CIT and PCIT vs. Sreeleathers."

"No failure was found in the Tribunal's application of judicial precedents including BST Infratech Ltd. and Swati Bajaj."

"No substantial question of law arises, and the appeal is dismissed."