2018 (4) TMI 380 - AT - Income Tax

Tribunal affirms deletion of AO's addition towards share application money under Income Tax Act

The Tribunal dismissed the Revenue's appeal and affirmed the CIT(A)'s decision to delete the addition made by the AO towards share application money under ... Addition towards share application money u/s 68 - share application money - bogus shareholders - ROC has struck off the names of two companies for the reason that those two companies have not filed their annual accounts for few years - Held that:- once the assessee has furnished names and addresses alongwith PAN of subscribers, then the AO is free to reopen the assessment of subscribers in accordance with law, but the share application money cannot be regarded as undisclosed income of the assessee. AO cannot question issue of shares at a premium and also cannot bring to tax such share premium within the provisions of section 68 of the Act, before insertion of Proviso to section 68 by the Finance Act, 2012 w.e.f. 1-04- 2013 The assessee has proved identity, genuineness of transaction and creditworthiness of the parties insofar as 3 share applicants are concerned. The CIT(A), after considering relevant facts has rightly deleted addition made by the AO. We do not find any error in the order of the CIT(A); hence, we are inclined to uphold the findings of the CIT(A) and dismiss the appeal filed by the revenue. Issues Involved:1. Deletion of addition made by the Assessing Officer (AO) towards share application money under Section 68 of the Income Tax Act.Issue-wise Detailed Analysis:1. Deletion of Addition Made by the AO Towards Share Application Money under Section 68 of the Income Tax Act:The case pertains to the assessment year 2010-11, where the assessee company, engaged in manufacturing, trading, and exporting pharmaceutical items, declared an income of Rs. 32,81,207. The AO, after scrutiny, determined the total income at Rs. 1,73,63,846, making additions towards unexplained cash credits under Section 68, specifically towards share application money received from three parties, and disallowance of interest expenses under Section 36(1)(iii) of the Act.During the assessment proceedings, the AO noticed that the assessee received share application money amounting to Rs. 1.15 crores from three parties. The AO issued notices under Section 133(6) to verify the genuineness of the transactions, which were returned unserved. The AO further investigated the bank accounts involved and observed that the share application money was deposited by a single person, raising suspicion about the genuineness and creditworthiness of the transactions. Consequently, the AO treated the amount as the assessee’s own undisclosed income under Section 68.The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that it had provided sufficient evidence, including share application forms, PAN cards, incorporation certificates, and bank statements, to prove the identity, genuineness, and creditworthiness of the parties. The CIT(A), relying on the Supreme Court decision in CIT vs. Lovely Exports Pvt Ltd, held that if the share application money is received from alleged bogus shareholders whose names are provided, the department should reopen their individual assessments but cannot treat it as the assessee’s undisclosed income. The CIT(A) directed the AO to delete the addition and pass on the information to the concerned AO for further enquiry.The Revenue appealed against the CIT(A)’s order, arguing that the deletion was erroneous as the assessee failed to satisfactorily explain the nature and source of the credits. The Revenue highlighted that two of the share applicants’ names were struck off by the Registrar of Companies (ROC), indicating they were shell companies providing accommodation entries.The assessee contended that it had discharged its initial onus by providing necessary documents and that the AO cannot question the source of the source once the primary onus is discharged. The assessee also argued that the striking off of names by the ROC was due to non-filing of annual returns and did not affect the genuineness of the transactions.Upon hearing both parties, the Tribunal noted that the assessee had provided sufficient evidence to prove the identity, genuineness, and creditworthiness of the share applicants. The Tribunal emphasized that once the assessee discharges its initial burden, the onus shifts to the Revenue to prove otherwise. The Tribunal found that the AO’s addition was based on suspicion and surmises without concrete evidence. The Tribunal upheld the CIT(A)’s order, stating that the AO cannot make additions towards share application money if the assessee has provided the names, addresses, and PAN details of the subscribers. The Tribunal also noted that the issue of shares at a premium cannot be questioned by the AO as long as the transactions are genuine.Conclusion:The Tribunal dismissed the Revenue’s appeal, affirming the CIT(A)’s decision to delete the addition made by the AO towards share application money under Section 68. The Tribunal held that the assessee had adequately proved the identity, genuineness, and creditworthiness of the share applicants, and the AO’s addition was not justified.