2002 (4) TMI 955 - AT - Income Tax

Tribunal allows appeal, deletes unexplained additions, shifts burden of proof.

Swagat Synthetics (P) Ltd. Versus Income-Tax Officer

The Tribunal allowed the appeal in part, deleting the addition of unexplained share application money and certain cash credits. The Tribunal found that ... - Issues Involved:1. Addition of Share Application Money under Section 68 of the IT Act.2. Addition of Cash Credits under Section 68 of the IT Act.Issue-wise Detailed Analysis:1. Addition of Share Application Money under Section 68 of the IT Act:The assessee-company increased its subscribed share capital and received share application money from eight shareholders, leading the Assessing Officer (AO) to add Rs. 1,30,000 as unexplained share application money under Section 68 of the IT Act. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed this addition, referencing the case of CIT vs. Stellar Investment Ltd. and CIT vs. Sophia Finance Ltd. The CIT(A) noted that the Full Bench of the Delhi High Court in Sophia Finance Ltd. held that Section 68 is widely worded and applies to share application money credits. The Supreme Court in Stellar Investment Ltd. did not address the scope of Section 68 regarding share application money, thus not altering the legal position established in Sophia Finance Ltd.The CIT(A) emphasized that Section 68 applies to private limited companies due to the close relationship between promoters/directors and shareholders, unlike widely held companies where public subscriptions are allowed. The argument that Section 68 is inapplicable to share application money was rejected.The learned authorized representative contended that the case is covered by the Supreme Court's affirmation of Stellar Investment Ltd., arguing that share capital cannot be regarded as undisclosed income of the assessee. The identity and payment by shareholders were established, and the CIT(A) agreed that the identity of shareholders and their payments sufficed to discharge the assessee's burden.The Tribunal observed that the assessee provided necessary details such as PAN, bank account statements, and confirmations from shareholders, proving their identity and payments. The initial burden of proof was discharged by the assessee, shifting the onus to the Department, which failed to provide contrary evidence. Thus, the addition of Rs. 13,00,000 was deleted, but the AO was permitted to make further inquiries regarding the shareholders.2. Addition of Cash Credits under Section 68 of the IT Act:The assessee received cash credits totaling Rs. 1,46,300 from seven individuals. The AO added this amount, doubting the creditors' ability to save such sums. The CIT(A) confirmed the addition.The learned authorized representative argued that some creditors were regular income-tax assessees and provided necessary documents like bank statements, balance sheets, and confirmations. Statements from non-assessees were recorded, confirming the advances and explaining the sources.The Tribunal found that the assessee discharged the initial burden for creditors like Smt. Sunita Nuwal and Madhu Sudan Nuwal by providing necessary particulars. For creditors like Gordhan Sharma, Kailash Sharma, and Rameshwar Lal, the Tribunal noted that even individuals with meager incomes could save small amounts, thus deleting the additions. However, for Ram Nath and Ladu Lal, who could not be produced before the AO, the additions of Rs. 18,000 and Rs. 15,000 were confirmed due to insufficient justification for their absence.Conclusion:The appeal was allowed in part, with the deletion of additions related to share application money and certain cash credits, while confirming the additions for Ram Nath and Ladu Lal.