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2014 (11) TMI 1135 - AT - Income TaxAddition on account of share capital/share application money - AO rejecting the evidence and details submitted by the assessee - Held that - AO was not justified in rejecting the evidence and details submitted by the assessee without any further verification and examination of the same. We also observe that the AO made addition by accepting the statement of the alleged entry providers recorded by the Investigation Wing accepting the same as gospel truth without affording opportunity of cross-examination to the assessee. See case of CIT vs Divine Leasing and Finance Ltd. (2008 (1) TMI 927 - SUPREME COURT) wherein dismissing the special writ petition of the department, their lordships held that if share application money is received by the assessee company from alleged bogus shareholders whose names are given to the AO, then the department is free to proceed to reopen their individual assessment in accordance with law. Under the facts and circumstances of the present case, we are in agreement with the conclusion of the CIT(A) that once the identity of the investor has been manifested and proved by the assessee by submitting their names, addresses, PAN Nos. and other relevant details, then the capital receipt of share application money cannot be said to be the undisclosed income of the assessee and addition u/s 68 of the Act is not sustainable. However, the AO is free to proceed to reopen the individual assessments of the respective persons who provided share capital money. - Decided in favour of assessee.
Issues:
Appeal against CIT(A) order deleting addition of share capital/share application money made by AO under section 68 of the Income Tax Act, 1961. Detailed Analysis: 1. Issue of Share Capital Addition: The Revenue appealed against the CIT(A) order deleting the addition of Rs. 25,00,000 made by the Assessing Officer (AO) on account of share capital/share application money under section 68 of the Income Tax Act, 1961 for the assessment year 2003-04. The AO treated the share application money as unexplained credit based on information received from the Investigation Wing regarding accommodation entries. The CIT(A) allowed the appeal of the assessee, leading to the Revenue's appeal before the Tribunal. 2. Arguments by the Revenue: The Revenue contended that the CIT(A) erred in deleting the addition without justified cause, emphasizing that the transaction was not genuine and amounted to an accommodation entry. The AO's decision to treat the amount as unexplained credit was supported by the statements of entry providers recorded by the Investigation Wing, which the Revenue argued were not adequately considered by the CIT(A). 3. Arguments by the Assessee: The Assessee argued that they had established the bona fides of the transaction by providing evidence such as subscriber details, PAN numbers, and addresses. The Assessee criticized the AO for disregarding their evidence and solely relying on the statements of entry providers without allowing cross-examination. The Assessee maintained that the share application money was genuine and not undisclosed income. 4. Tribunal's Analysis and Decision: The Tribunal considered the arguments and factual matrix of the case, noting that the CIT(A) relied on precedents such as the decision of the Hon'ble Supreme Court in CIT vs Divine Leasing & Finance Ltd. The Tribunal agreed with the CIT(A) that the Assessee had discharged the initial onus of proving the transaction's bona fides. It was observed that the AO did not provide evidence to establish that the share application money represented the Assessee's undisclosed income. The Tribunal highlighted that if there were doubts about the source of investment, additions should have been made in the investor company's hands. The Tribunal also referenced decisions supporting the Assessee's position that the addition was not sustainable. 5. Conclusion: The Tribunal held that the AO unjustly rejected the Assessee's evidence without further verification and examination. It was emphasized that once the investor's identity was proven, the share application money could not be treated as undisclosed income of the Assessee. The Tribunal upheld the CIT(A) order, dismissing the Revenue's appeal as devoid of merits. The Tribunal suggested that the AO could proceed to reopen the assessments of the individuals who provided the share capital money.
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