2017 (3) TMI 1566 - AT - Income Tax

Addition of unexplained share application money - Held that - Mere production of PAN details is not sufficient to establish identity of a person. Hon ble apex court affirms the same in its reported order 2015 (9) TMI 54 - SUPREME COURT OF INDIA. We proceed further to notice that hon ble Delhi high court in Onassis Axles Private Limited Versus Commissioner of Income Tax 2014 (2) TMI 751 - DELHI HIGH COURT upholds this tribunal s order restoring Assessing Officer s finding making Section 68 addition of share application money after taking note of the fact that the concerned share applicants belonging to different places had got prepared their pay orders on the same way falling on 29.06.2006. We take into account all this case law to conclude that the same is very much applicable in facts involved in the instant appeals wherein the assessee has not been able to prove even identity of its share applicants. We also wish to observe that its reliance being placed on demand draft applications is further devoid of merit since the concerned bank had not complied with KYC requirements before issuing demand drafts in question. We accordingly restore Assessing Officer s findings as narrated in preceding paragraphs to reverse CIT(A) s conclusion forming subject matter of our instant adjudication pertaining to both assessment years raising sole substantive issue of validity of Section 68 addition in question. The Revenue s sole substantive ground as identically pleaded in the instant appeals succeeds.

Summary

Issues Involved:
1. Validity of Section 68 addition of unexplained share application money for assessment years 1996-97 and 1997-98.
2. Adequacy of evidence provided by the assessee to prove the identity, genuineness, and creditworthiness of share applicants.
3. Proper procedural compliance by the Assessing Officer in issuing summons and conducting inquiries.

Detailed Analysis:

1. Validity of Section 68 Addition of Unexplained Share Application Money:
The primary issue in both appeals is the correctness of the Section 68 addition of unexplained share application money. The Assessing Officer (AO) made additions of ?46,82,981 and ?2,80,17,600 for the assessment years 1996-97 and 1997-98, respectively, due to the assessee's failure to provide satisfactory evidence regarding the identity, genuineness, and creditworthiness of the share applicants. The CIT(A) had earlier deleted these additions, but the tribunal restored the issue back to the AO for fresh assessment.

2. Adequacy of Evidence Provided by the Assessee:
For the assessment year 1996-97, the assessee provided details for 189 share applicants, but the AO categorized them into three groups:
- First Category: 18 applicants with complete details, which the AO accepted.
- Second Category: 26 applicants with only confirmations but no proof of identity or genuineness.
- Third Category: 145 applicants with no evidence at all.

The AO found discrepancies such as continuous numbering of cheques, signatures differing from application forms, and drafts prepared on the same date, raising doubts about the authenticity of the applicants. For the assessment year 1997-98, the AO added a similar unexplained amount due to the lack of confirmations.

3. Proper Procedural Compliance by the Assessing Officer:
The AO issued summons to 13 share applicants, but only two responded, and the rest were either untraceable or did not appear. The CIT(A) noted that the AO did not provide adequate time for the summoned parties to respond, thus questioning the validity of the assessment orders. However, the tribunal found that the AO's consequential assessments were valid as they were not reversed by the jurisdictional High Court, which directed the CIT(A) to decide the appeals based on merits and legal precedents.

Tribunal's Conclusion:
The tribunal observed that the assessee failed to prove the identity, genuineness, and creditworthiness of the share applicants, particularly for the 171 applicants in question. The tribunal noted that mere production of PAN details is insufficient to establish identity, and the suspicious circumstances surrounding the demand drafts further weakened the assessee's case.

The tribunal referred to judicial precedents, including the cases of Steller Investment Ltd. and Lovely Exports Ltd., but highlighted that these apply only when the identity of share applicants is proven. Given the lack of evidence and the AO's findings, the tribunal restored the AO's additions under Section 68, reversing the CIT(A)'s order.

Final Judgment:
The Revenue's appeals were allowed, and the additions of unexplained share application money for both assessment years were upheld.

Pronouncement:
The judgment was pronounced in the open court on March 7, 2017.