Tax Department Appeals Share Application Money Addition Deletion Decision under Income Tax Act

The department appealed the deletion of Rs. 45,00,000 addition by the A.O. under section 68 of the Income Tax Act. The A.O. treated share application money as unexplained cash credit due to common addresses, lack of fixed assets, and money trail. The ld. C.I.T.(A) deleted the addition based on precedents, finding the share capital received genuine. The Tribunal upheld this decision, emphasizing the burden of proof on the revenue to show the investment source. The appeal was dismissed, affirming the deletion of the addition.

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Issues Involved:
1. Deletion of addition of Rs. 45,00,000/- made by the A.O. u/s 68 of the Income Tax Act, 1961.

Summary:

Issue 1: Deletion of addition of Rs. 45,00,000/- made by the A.O. u/s 68 of the Income Tax Act, 1961

The department filed an appeal against the order of ld. C.I.T.(A)-VIII, Kolkata, which deleted the addition of Rs. 45,00,000/- made by the A.O. u/s 68 of the Act. The A.O. had treated the share application money received from five companies as unexplained cash credit. The A.O. observed that the parties had the same address, no fixed assets, and the money trail led to the assessee's bank account through intermediaries. Notices u/s 133(6) and 131 were issued, but the parties were not available at their addresses, and the assessee failed to produce them. The A.O. also noted the absence of advertisement and registrar for the share issue.

The ld. C.I.T.(A) deleted the addition, relying on the decisions of Hon'ble Delhi High Court in Divine Leasing & Finance Ltd. and Hon'ble Supreme Court in CIT vs. Lovely Exports Pvt. Ltd. The ld. C.I.T.(A) held that the share capital of Rs. 45 lakhs received from the investors was not liable to be treated u/s 68 as unexplained credits. The department argued that the facts of the case differed from the cited judicial pronouncements, as the assessee was a private limited company with no involvement of brokers or stock exchange.

The assessee's counsel supported the order of the ld. C.I.T.(A) and provided affidavits, audited balance sheets, I.T. return acknowledgements, and net worth calculations of the share applicants. The Tribunal observed that the A.O. disbelieved the introduction of capital based on the same address of the parties and lack of fixed assets. However, the existence and identity of the share applicant companies were not in dispute, and the A.O. failed to establish that the share applicants did not have the means to make the investment.

The Tribunal noted that the receipt of share application money was duly recorded in the books of the assessee-company and the audited accounts of the share applicants. The Tribunal held that the assessee had proved the identity, creditworthiness, and genuineness of the transactions. The burden of proof shifted to the revenue to establish that the investment came from the assessee-company itself, which the department failed to do. The Tribunal cited the Hon'ble Rajasthan High Court in Barkha Synthetics Ltd. vs. ACIT and the Hon'ble Supreme Court in CIT vs. Daulat Rant Rawatmuli, emphasizing that the onus is on the department to prove that the apparent is not the real.

The Tribunal also referred to the Third Member decision of I.T.A.T., Jodhpur Bench in Polymers (P) Ltd. vs. DCIT and the Hon'ble Supreme Court in CIT vs. M/s. Lovely Exports (P) Ltd., which held that the burden to prove that the money did not belong to the share applicants but to the assessee-company is on the revenue. The Tribunal concluded that the A.O. doubted the genuineness of the share application money on surmises and conjecture without any cogent material. Therefore, the Tribunal upheld the order of the ld. C.I.T.(A) in deleting the addition of Rs. 45 lakhs made by the A.O. u/s 68 of the Act.

In the result, the appeal of the department was dismissed.

This order was pronounced in the open Court on 26.11.2010.

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