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2012 (2) TMI 528 - AT - Income TaxUnexplained Cash Credits u/s 68 - Assessee has failed to prove the identity of the share applicants, the share application money as received by the assessee, is liable be added to the income u/s 68 - Before CIT, assessee filed detailed written submissions, including address, PAN and has referred to further documentary evidences filed and compliances made by such share applicants before AO is in response to notice u/s.133(6) issued. HELD THAT - We observed that summons were issued to the share applicants, requiring certain information u/s 131, the share applicants duly confirmed that they gave share application money to assessee through cheque, meaning thereby the identity of the share applicants was proved. Other documents were also furnished by them acknowledging the return. All these documents clearly prove their identity if the summons would not have been received or the addresses of the share applicants would have been fake, there was no question of service of summons and consequent reply by such share applicants. In view of these facts, the decision from Hon'ble Apex Court in the case of COMMR. OF INCOME TAX VERSUS M/S LOVELY EXPORTS (PVT) LTD 2008 (1) TMI 575 - SC ORDER , clearly comes to the rescue of the assessee, where it was held that even if such share applicants are bogus, but their identity is proved, then no addition is warranted in the case of the assessee. In the present appeal, since the identity of such share subscribers, as we have discussed above, was established, therefore, no addition u/s 68 is warranted in the case of the assessee company- Decision in favour of Assessee.
Issues Involved:
1. Whether the sum of Rs. 30 lacs received as share application money by the assessee is assessable as cash credit under Section 68 of the Income Tax Act, 1961. 2. Whether the identity, creditworthiness, and genuineness of the share applicants were satisfactorily established by the assessee. Issue-wise Detailed Analysis: 1. Assessability of Rs. 30 lacs as Cash Credit under Section 68: The primary issue was whether the sum of Rs. 30 lacs received by the assessee as share application money can be assessed as cash credit under Section 68 of the Income Tax Act, 1961. The Assessing Officer (AO) treated the amount as unexplained cash credit, citing the lack of satisfactory evidence regarding the identity, creditworthiness, and genuineness of the share applicants. The AO observed that the financial capacity of the share subscribers was not sound and concluded that the transactions were manipulated to introduce unaccounted money as share application money. 2. Establishment of Identity, Creditworthiness, and Genuineness: The assessee argued that the identity of the share applicants was proved, referencing the Supreme Court decision in Lovely Exports (P) Ltd., which held that if the share application money is received from alleged bogus shareholders whose names are provided to the AO, the Department is free to reopen their individual assessments but cannot add the amount under Section 68 in the hands of the company. The assessee provided details, addresses, and PAN numbers of the companies from whom the share application money was received. Notices issued under Section 133(6) to these companies returned unserved, prompting the AO to demand the production of the share applicants, which the assessee failed to do. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing that the assessee failed to explain the soundness of the share applicants' financial decisions and that the companies were merely paper entities without genuine financial worth. The CIT(A) noted that the share application money remained pending allotment for an extended period, indicating dubious financial practices. Upon appeal, the Tribunal considered the rival submissions and the material on record. The Tribunal noted that the assessee provided confirmations from the share applicants, along with their bank statements and income tax return acknowledgments. The Tribunal found that the identity of the share applicants was established as the summons issued to them were duly received, and they provided confirmations of the share application money. The Tribunal referred to the Supreme Court decision in Lovely Exports (P) Ltd., which stated that if the identity of the share applicants is proved, no addition under Section 68 can be made in the hands of the company, even if the share applicants are alleged to be bogus. The Tribunal distinguished the present case from other cases cited by the Department, where the identity of the share applicants was not proved or their addresses were found to be non-existent. Conclusion: The Tribunal concluded that the identity of the share applicants was proved, and therefore, no addition under Section 68 was warranted in the hands of the assessee company. The Tribunal allowed the appeal of the assessee, emphasizing that if the Department finds the share applicants to be bogus, they are free to reopen their individual assessments but cannot make additions under Section 68 in the hands of the assessee company. Final Order: The appeal of the assessee was allowed, and the order was pronounced in open Court on 6th February 2012.
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