2011 (8) TMI 1187 - AT - Income Tax

Addition u/s 68 - Held that - The requirement of law under section 68 in the case of capital contribution is that the identity of the contributor is required to be established by the assessee. The identity is not under challenge at all. Therefore, we are of the view that the ld. CIT(Appeals) rightly deleted the addition.

Summary

Issues:
1. Addition of Rs. 30.00 lakh under section 68 of the Income Tax Act for bogus share capital.

Detailed Analysis:

Issue 1: Addition of Rs. 30.00 lakh under section 68 of the Income Tax Act for bogus share capital
1.1 The assessee-company was incorporated for real estate business. The Assessing Officer (AO) added Rs. 30.00 lakh under section 68 of the Income Tax Act, as the assessee failed to prove creditworthiness of contributors and genuineness of transactions.
1.2 The AO found that the money received as share capital was from companies involved in providing accommodation entries. The AO required proof of identity, capacity of contributors, and genuineness of transactions. Despite submissions with confirmations, PAN, bank statements, and affidavits, as well as replies from contributing companies, the AO added the amount due to lack of director verification.
1.3 The CIT(Appeals) concluded that the AO failed to prove the money's source and that the assessee provided adequate evidence of contributor identity. The CIT(Appeals) deleted the addition.

Issue 2: Appeal against CIT(Appeals) order
2.1 The assessee argued that all contributors were legitimate limited companies, funds were received through banking channels, and evidence proved creditworthiness and transaction genuineness. The AO ignored evidence from contributing companies due to lack of director verification.
2.2 The Department argued that the investigation showed potential money laundering, and lack of director verification invalidated affidavits. They sought to set aside the CIT(Appeals) order.
2.3 The Tribunal found the contributor identity was established, which was not in dispute. Citing case law, including the judgment in Lovely Export Pvt. Ltd., the Tribunal upheld the CIT(Appeals) decision to delete the addition under section 68.

In conclusion, the Tribunal dismissed the appeal, upholding the CIT(Appeals) decision to delete the addition of Rs. 30.00 lakh under section 68 of the Income Tax Act for bogus share capital, as the contributor identity was established, meeting the legal requirements.