2024 (5) TMI 649 - HC - Income Tax

Assessee successfully proves genuineness of Rs. 4.99 crore share application money under section 68

The Commissioner of Income Tax “Central Circle”, Panaji, Goa. Versus M/s Primeslots Properties Pvt. Ltd.

The Bombay HC upheld ITAT's decision setting aside an addition of Rs. 4.99 crores under section 68 for unexplained credit. The Revenue alleged the ... Addition u/s 68 - unexplained credit appearing in his books of account - share application money - Discharge of burden of proving the credit appearing in his books of account - transactions done by it with Smt. Sunitha, whereby funds were transferred to the Assessee Company and utilized by it - it is the Revenue’s case that the burden was upon the assessee to prove the genuineness and creditworthiness of the transaction, which in the present case it has failed to discharge - ITAT concluded that there was no material with the Revenue to conclude that this money was received from Mrs. Sunita against rendering of service by the Company to treat this transaction as a revenue receipt in the hands of the assessee. HELD THAT:- ITAT has applied the settled principle that when a receipt is sought to be taxed as income, and in this case there was no evidence to show that this receipt was towards rendering of services by the Company, in the light of the various documents produced by the assessee as proof of the transaction of allotment of shares against the amount received, it set aside the assessment order, insofar as the addition of Rs. 4.99 crores to the income of the assessee. The reasoning adopted by the ITAT is based upon a sound legal principle and reflected from the documents placed by the assessee before the assessment officer. The documents, which consist of return of allotment of shares, resolutions of the company, and other documents filed in terms of the Companies Act before the Authorities to substantiate the transaction had not been doubted. In addition, the record of the company petition filed by Mrs. N. Sunita before the High Court, which was ultimately disposed by consent terms filed by the parties by which Sunita was made 25% shareholder in the Company was also produced, but not considered by the AO. CIT(A) considered these documents, including the copy of the company petition and though it records that according to the consent terms, shares were allotted to N. Sunita to the extent of 25% of shareholding of the Company, it holds that the amount advanced was towards some other purpose such as against execution of a contract and not meant to be returned, resulting in the litigation. ITAT, on considering all this material, has concluded that there is no evidence found on the record that the amount was paid for availing of any service from the Company to treat the transaction as a revenue receipt in the hands of the Company. We are unable to disagree with the findings arrived at by the ITAT which appears to be fully based upon the material on record, and cannot be termed as perverse. Case of CIT vs. Sadiq Shaikh [2020 (10) TMI 1028 - BOMBAY HIGH COURT] would not apply to the facts of the present case as in the present case, as held by the ITAT on the basis of documentary evidence on record, the genuineness of the transaction was proved by the assessee who had discharged the burden which rested on it. The view taken by the ITAT cannot be faulted and is accordingly upheld. The two substantial questions of law are therefore answered in favour of the Respondent, and against the Revenue. Issues:The issues involved in this case are whether the disputed amount received by the Assessee is taxable as income and whether the Assessee adequately explained the nature of the transaction.Summary:The tax appeal under Section 260A of the Income Tax Act, 1961 was filed by the Revenue challenging the order of the Income Tax Appellate Tribunal (ITAT) regarding the amount of Rs. 4,99,00,000 received by the Assessee from Smt. N. Sunitha. The case pertains to Assessment Year 2007-08.The Appellants contended that the Assessee failed to explain the purpose of the receipt of Rs. 4.99 crores and the Directors of the Company admitted receiving this amount but could not justify its non-taxable nature. An assessment order was passed by the Assessing Officer adding this amount to the income of the Assessee Company.The Assessment Order was challenged by the Assessee before the Commissioner Income Tax (Appeals) (CIT(A)), who upheld the assessment order. The Assessee further appealed before ITAT, which reversed the orders of the AO and CIT(A) based on evidence that the amount was paid for share allocation.The main contention was whether the Assessee adequately proved the credit appearing in its books of account with positive material. The ITAT found that the Assessee supported its claim with various documents showing share allocation and statutory compliances under the Companies Act.The ITAT concluded that there was no evidence to treat the transaction as a revenue receipt in the hands of the Assessee, based on the documents produced. The High Court upheld the ITAT's decision, stating that the Assessee proved the genuineness of the transaction and answered the substantial questions of law in favor of the Assessee.Therefore, the appeal was dismissed with no order as to cost.