Addition for share application money not warranted if AO not disputed correctness of evidences furnished or not made any adverse comments – ITAT
ABCAUS Case Law Citation:
ABCAUS 1191 (2017) (03) ITAT
The Grievance:
The appellant assessee company was aggrieved by the order passed by the CIT(A) inter alia confirming the additions made by the Assessing Officer (‘AO’) towards share capital as undisclosed income of the assessee company under section 68 of The Income Tax, Act, 1961 (‘the Act’).
Assessment Year : 2005-06
Date/Month of Pronouncement: March, 2017
Brief Facts of the Case:
The case was selected for scrutiny under CASS under compulsory category and a statutory notice under section 143(2) of the Act was issued and served on the assessee which was followed by notice u/s.142(1) of the Act with a questionnaire. Subsequently, the assessment was framed by the AO by holding that the new share capital and share premium credited in the books of accounts of the assessee was unexplained credits u/s 68 of the Act and the same was added to the income of the assessee.
Against the order of the AO, assessee appealed before the CIT(A), who partly allowed the appeal of the assessee. Not satisified with the order, the
Contentions of the Appellant:
It was submitted that the assessee had furnished all the necessary documentary evidence for substantiating its claim and in spite of the same the Revenue authority wrongly made the addition in dispute.
Observations made by the Tribunal:
The ITAT observed that that the assessee had filed all the necessary documentary evidences before the AO as well as before the CIT(A) for substantiating its claim which included the following:
share application forms;
copy of affidavits of the Director of Share applicant company;
copy of acknowledgement of ITR;
copy of audited financial statements of the share applicant company;
copy of bank statement of the share applicant company for the relevant period;
copy of bank statement of the assessee company reflecting the transactions ;
copy of the letter issued by companies confirming the investment made in assessee company and further giving their updated address;
The ITAT further observed that the Assessing Officer had not disputed the correctness of all these documents or made any adverse comments in respect of the same. Further, there was no adverse information from Investigation Wing or from any other agency. As per these documents, it is evident that assessee has established identity, source and genuineness of share capital.
In view of the above, the Tribunal opined that there was no ground or basis to dispute the correctness of the share capital as the same was fully supported from facts and settled legal principles as laid down in the following cases:-
| Case Laws | Held / Observed |
| CIT Vs. Rhombus International Pvt. Ltd. |
It is not the case of the revenue that these persons are entry providers and there was any other material or doubt that these were bogus entries routed through fictitious or name lenders. Assessing Officer did not conduct any investigation by sending Inspector to the address and nothing has been brought on record to show steps or attempt by the assessing officer to go deeper and find out/check veracity of the assertion. The share application money addition is not in isolation but has to be examined with other additions on similar grounds. Absence of verification, different additions made and reasoning given for deleting the additions are plausible. The order of the tribunal is not perverse and does not require interference. No substantial question of law arise. |
| CIT .v. Gangeshwari Metal (P.) Ltd |
Cash credits-Share application money-Evidence furnished by assessee-Addition was not justified. The assessee received certain amount as share application money. In order to prove genuineness of transaction, the assessee brought on record various documents such as names and addresses of share applicants, confirmatory letters of share applicants, copies of their bank statements etc. The Assessing Officer found the assessee’s explanation to be unacceptable and, consequently, added the amount of share application money to assessee’s taxable income which was deleted by the Commissioner(Appeals). The Tribunal upheld the order of the Commissioner (Appeals).On appeal High Court held that, there was a clear lack of inquiry on the part of the Assessing Officer once the assessee had furnished all the relevant material. In such an eventuality no addition can be made under S. 68. |
| CIT vs. Kamdhenu Steel & Alloys Ltd | Issue Involved: “Whether once the assessee has discharged the initial burden by filing adequate evidence/material, Revenue is supposed to dislodge the initial burden discharged by the assessee and to throw the ball again in the assessee’s’ court demanding the assessee to give some more proofs, as the documents produced earlier by the assessee either become suspect or are rendered insufficient in view of the material produced by the Department rebutting the assessee’s documentary evidence?” Decided in Favour of : Assessee Held: The Hon’ble Supreme Court has dismissed the Special Leave Petition filed by the Revenue against the decision of Hon’ble Delhi High Court in the case CIT v. Kamdhenu Steel & Alloys Ltd. [2014] 361 ITR 220 in which it has been held: Cash credits—Unexplained investments–Burden of proof–Share application money–Assessee explaining source’ of money-Identities of applicants and their creditworthiness established–Burden of proof discharged by assessee–Onus shifted to Department–No evidence to show transactions were not genuine–Sections 68 and 69 not applicable- -Income-tax Act, 1961, ss. 68, 69: |
| CIT Vs. Lovely Exports | if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of the assessee. |
| Pr. CIT vs. Goodview Trading Pvt. Ltd |
The CIT(A)’s reasoning that the materials clearly pointed to the share applicants’ possessing substantial means to invest in the assessee’s company. The AO seized certain material to say that minimal or unsubstantial amounts was paid as tax by such share applicants and did not carry out a deeper analysis or rather chose to ignore it. In these circumstances, the inferences drawn by the CIT(A) are not only factual but facially accurate |
Held:
The assessee fully proved its burden and discharged the onus upon the Department, however, no contrary evidence was shown by the AO which will prove that the transactions were not genuine, therefore, the addition made by the AO and confirmed by the CIT(A) was totally unwarranted and the same needs to be deleted.
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