2015 (6) TMI 1023 - AT - Income Tax

Addition u/s 68 - undisclosed cash credit - Held tht - We do not find any strength in the allegation made by the AO. Allegations are baseless and without any supportive evidence. On the contrary, these two companies have paid share application money from their bank accounts through account payee cheque, therefore the transaction cannot be treated as bogus. Since the AO has not made any further enquiry, merely because of the false allegation, a genuine transaction cannot become non genuine transaction. The First Appellate Authority has considered the facts in the light of the provisions of Sec. 68 of the Act and have deleted the additions in respect of these six companies. On the basis of same documentary evidences brought on record before us, we do not find any reason to interfere with the findings of the Ld. CIT(A). - Decided in favour of assessee

Summary

Issues Involved:
1. Genuineness of share subscriptions from various companies.
2. Identity, creditworthiness, and genuineness of transactions related to share application money.
3. Validity of additions made under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Genuineness of Share Subscriptions from Various Companies:
The Assessing Officer (AO) scrutinized the accounts of the assessee, a dealer in steel and iron, and noticed the issuance of 92,700 shares at a premium, totaling Rs. 10,19,70,000/-. The AO questioned the genuineness of the share subscriptions from several companies, particularly those linked to Shri Mukesh Choksi, who admitted to fraudulent activities, including bogus share capital introduction. The AO treated the share application money from these companies as unexplained income under Section 68 of the Act, resulting in an addition of Rs. 9,60,30,000/-.

2. Identity, Creditworthiness, and Genuineness of Transactions:
The assessee provided confirmations and financial documents for some companies, but the AO found discrepancies, particularly in the balance sheets of the companies, where no investment in the assessee was shown. The AO relied on information from a search operation and statements from Shri Mukesh Choksi, concluding that the share subscriptions were bogus. However, the CIT(A) was convinced of the genuineness, identity, and creditworthiness of four companies linked to Shri Mukesh Choksi and two other companies, but confirmed the addition for the remaining six companies.

3. Validity of Additions Made Under Section 68 of the Income Tax Act:
Upon appeal, the Tribunal examined the documentary evidence and found that transactions with the companies were conducted through account payee cheques. The Tribunal noted that there was no direct evidence linking the assessee to the fraudulent activities of Shri Mukesh Choksi. The Tribunal emphasized that merely because Shri Mukesh Choksi was involved in fraudulent activities did not automatically make the transactions with the assessee non-genuine. The Tribunal referred to the Supreme Court's ruling in Lovely Export Pvt. Ltd., which held that if share application money is received from alleged bogus shareholders, the department should proceed against the shareholders individually, not treat it as undisclosed income of the assessee.

Revenue's Appeal:
The Tribunal dismissed the Revenue's appeal, finding no justification for the addition made by the AO. The Tribunal upheld the CIT(A)'s decision to delete the additions for the six companies, as the transactions were conducted through account payee cheques and there was no evidence of cash deposits prior to issuing cheques.

Assessee's Appeal:
The Tribunal considered the assessee's appeal regarding the additions made for six other companies. The Tribunal found that the AO's reasons for the additions, such as the directors not attending proceedings and incorrect addresses, were insufficient to treat the transactions as non-genuine. The Tribunal noted that the companies were represented by their Chartered Accountants, who provided necessary details, and the transactions were conducted through account payee cheques. The Tribunal concluded that the assessee had successfully established the genuineness, identity, and creditworthiness of the share applicants, and directed the AO to delete the additions.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, directing the deletion of additions made under Section 68 of the Income Tax Act. The Tribunal emphasized the importance of documentary evidence and the need for the Revenue to proceed against individual shareholders if there are doubts about the genuineness of share application money.