2010 (3) TMI 1084 - AT - Income Tax

Tribunal directs AO to verify source of funds & make additions with actual providers, not assessee company.

The Tribunal directed the AO to verify the source of funds and make any addition in the hands of the actual providers of the money, not the assessee ... - Issues Involved:1. Validity of addition of share application money u/s 68.2. Onus of proving the genuineness and creditworthiness of share applicants.3. Reliance on investigation reports and statements without cross-examination.Summary:1. Validity of Addition of Share Application Money u/s 68:The AO added the entire share application money and commission to the assessee's income, citing that the share capital was not genuine based on an investigation report. The CIT(A) deleted this addition, observing that the assessee had provided comprehensive details including PAN numbers, share application forms, board resolutions, bank statements, and income tax returns of the applicant companies. The CIT(A) relied on the Supreme Court's decision in the case of Lovely Exports, which held that if share application money is received from alleged bogus shareholders whose names are given to the AO, no addition can be made in the hands of the assessee company.2. Onus of Proving Genuineness and Creditworthiness:The assessee argued that it had discharged its onus by furnishing all necessary details of the shareholders, including their PAN numbers, bank statements, and income tax returns. The CIT(A) supported this by noting that the bank statements showed sufficient funds and no cash deposits before the issuance of cheques. The Tribunal agreed, stating that the assessee had established the identity and creditworthiness of the shareholders and that the department had not provided any evidence to the contrary.3. Reliance on Investigation Reports and Statements Without Cross-Examination:The AO relied on an investigation report indicating that the share applicant companies were providing accommodation entries. The assessee contended that the AO did not verify the correctness of these statements nor provided an opportunity for cross-examination. The Tribunal emphasized that without corroborative material and cross-examination, such statements could not be used against the assessee. The Tribunal directed the AO to verify the source of the money and, if found to be unaccounted, consider the addition in the hands of the actual providers of the funds.Conclusion:The Tribunal restored the matter to the AO for further verification of the source of funds and directed that any addition should be made in the hands of the persons who provided the money, not the assessee company. The appeal of the Revenue was allowed in part.