Income Tax Appeal Success: Share application money addition overturned due to lack of investigation

The appeal was filed against the order of the Commissioner of Income Tax [Appeals] regarding the addition of Rs. 8,50,000 as share application money under section 68 of the Income-tax Act, 1961 for the assessment year 2012-13. The Tribunal found that the Assessing Officer failed to adequately investigate the source of the shareholder's investment and directed the deletion of the addition, ruling it should have been made in the shareholder's hands if unexplained. The appeal was allowed, and the addition of Rs. 8.50 lakhs was deemed unwarranted, leading to its deletion.

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Issues:
Appeal against order of CIT(A) - Addition of share application money u/s 68 of the Income-tax Act, 1961.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax [Appeals] regarding the addition of Rs. 8,50,000 as share application money under section 68 of the Income-tax Act, 1961 for the assessment year 2012-13. The appeal was initially considered time-barred by 66 days, but the delay was condoned due to reasonable cause. The primary grievance of the assessee was the confirmation of the addition by the CIT(A).

During the scrutiny assessment, the Assessing Officer observed that the assessee had shown share application money of Rs. 8.50 lakhs and requested details along with confirmations and bank account copies of 34 persons who contributed. One of the contributors, Shri Achchan Khan, invested Rs. 4.35 lakhs in FY 2009-10 and Rs. 8.50 lakhs in FY 2011-12. Despite Shri Achchan Khan confirming the transactions, the Assessing Officer doubted his means and requested his presence.

The assessee explained that Shri Achchan Khan withdrew the amount from his capital as a member of AOP M/s Ahmed Trader BSR and invested it as share application money. However, the Assessing Officer believed Shri Achchan Khan lacked the means to make such investments and added Rs. 8.50 lakhs under section 68 of the Act. The matter was taken to the first appellate authority but was unsuccessful.

Upon review, the Tribunal noted that Shri Achchan Khan's identity as a shareholder was established, and he confirmed the transactions with necessary details. The Tribunal questioned why the Assessing Officer did not issue summons under section 131 of the Act to Shri Achchan Khan or inquire about the source of his investment. It was opined that if the source was unexplained, the addition should have been made in Shri Achchan Khan's hands, not the company's, as the company had fulfilled its initial burden under section 68. Consequently, the addition of Rs. 8.50 lakhs was deemed unwarranted and directed to be deleted.

In conclusion, the Tribunal allowed the appeal, and the order was pronounced on 13.11.2018.

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