2010 (1) TMI 1219 - AT - Income Tax

Appeal allowed as assessee failed to prove shareholder identity

The appeal by the revenue against the deletion of an addition made under section 68 regarding share application money was allowed by the Tribunal. The ... - Issues Involved:1. Deletion of addition made u/s 68 regarding share application money. Summary:Issue 1: Deletion of addition made u/s 68 regarding share application moneyThis appeal by the revenue is directed against the order of the learned Commissioner of Income-tax (Appeals)-XVI, New Delhi, dated 09.02.2009 in an appeal against the assessment framed u/s 143(3) of the Income-tax Act (the Act).The revenue raised the ground that the Ld. CIT(A) erred in law in deleting the addition of Rs. 18,00,000/- made u/s 68 with respect to the money claimed to have been received as share application money without appreciating the facts and the circumstances in the right perspective.During the year, the assessee company issued 18000 shares of Rs. 10/- each at a premium of Rs. 90/-. The AR of the assessee provided details including acknowledgments of IT returns, balance sheets, and confirmations on affidavit from M/s. G.C. Technology India Pvt. Ltd. and M/s. Fair 'N' Square Exports Pvt. Ltd. However, the AR failed to produce the Principal Officers of these parties for verification.Investigations revealed that these companies were not carrying on any actual business and were engaged in providing accommodation entries. Summons u/s 131 were issued but the companies did not respond, and the Inspector's report confirmed that the companies did not exist at the given addresses. The AO concluded that the amount of Rs. 18,00,000/- was never received as share capital and was a camouflaged transaction to avail the benefit of favorable judicial pronouncements on share capital, thus adding it back to the income u/s 68.The learned CIT(A) observed that the AO made the additions based on information from the Investigation Wing without verifying the facts. The CIT(A) held that the assessee had discharged its initial onus by providing documentary evidence proving the identity of the shareholders. The CIT(A) deleted the addition as the AO did not conduct any investigation/enquiry during the assessment proceedings.The learned DR relied on the order of the AO, while the learned counsel for the assessee supported the findings of the CIT(A). The Tribunal considered the facts and arguments, referring to the ITAT Delhi Bench's decision in the case of ITO vs. M/s. Omega Biotech Ltd., which dealt with identical issues. The Tribunal noted that the existence of share applicants was not proved as the companies did not exist at the given addresses, and the directors of the shareholder companies admitted to providing accommodation entries.The Tribunal found that the assessee failed to establish the identity of the shareholders and the justification for charging a premium of Rs. 90/- per share. The Tribunal restored the matter back to the file of the AO to provide the assessee a reasonable opportunity to establish the identity of the shareholders.In the result, the appeal was allowed for statistical purposes.Pronounced in the open court on 29th January, 2010.