2015 (3) TMI 677 - AT - Income Tax

Bogus share capital - Addition u/s 68 on account of share application money - CIT(A) deleted the addition - Held that - The assessee company had discharged the initial onus to prove the genuineness of the transaction along with identity of the investor and its creditworthiness cast upon it by furnishing details, PAN Nos., addresses and confirmations in the form of affidavits of share applicants/contributors. In the present case, when the summons issued to the alleged investors could not be complied with, without any further effort and verification, the AO proceeded to make an addition u/s 68 of the Act merely relying on the information received from the Investigation Wing of the department which is not a proper approach. From the assessment order, we observe that the assessee claimed to have received share application money of ₹ 1,01,77,000 during the year under consideration but the AO disputed the four transactions on the basis of information of Investigation Wing of the department. The AO issued summons u/s 131 of the Act to these four entities. The summon to M/s Samrendra Leathers Pvt. Ltd. was returned by postal authorities with the remark Lock closed and the summons u/s 131 of the Act to other three entities was received unserved with the common remark no such person at the given address . Thus respectfully taking note of decision of CIT vs Lovely Export (2008 (1) TMI 575 - SUPREME COURT OF INDIA) wherein held that if the 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 but no such exercise has been conducted by the AO in the instant case. Hence, we are unable to see any perversity, ambiguity or any other valid reason to interfere with the impugned order and we uphold the same. - Decided against revenue.

Summary

Issues:
Appeal against deletion of addition of share application money under section 68 of the Income Tax Act, 1961.

Issue Analysis:

1. Background:
The appeal was filed by the revenue challenging the deletion of an addition of Rs. 21,00,000 made by the Assessing Officer (AO) under section 68 of the Income Tax Act, 1961, regarding share application money.

2. Revenue's Contentions:
The revenue argued that the AO correctly observed that the assessee received Rs. 21 lakh as share application money. The Investigation Wing informed the AO about entry operator companies providing accommodation entries, and the assessee failed to produce these entities for verification despite several opportunities.

3. Assessee's Defense:
The assessee contended that all necessary details were submitted to the AO, including names, addresses, PAN numbers, and affidavits of the parties from whom share application money was received. The AO allegedly made the addition hastily without proper verification or allowing cross-examination.

4. Tribunal's Analysis:
The Tribunal noted that the initial onus was on the assessee to prove the genuineness of the transaction, identity of the investor, and creditworthiness. The assessee fulfilled this onus by providing relevant details. Once the assessee discharged this onus, the burden shifted to the AO to disprove the claim with concrete evidence.

5. Legal Precedents:
The Tribunal relied on various judicial pronouncements, including the Supreme Court's decision in Lovely Exports Pvt. Ltd., emphasizing that the onus shifts to the revenue once the assessee proves the identity and genuineness of the transaction. The Tribunal highlighted that the AO's reliance on information from the Investigation Wing without further verification was not a proper approach.

6. Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 21,00,000, emphasizing that the AO failed to disprove the assessee's claim adequately. The Tribunal dismissed the revenue's appeal, citing the lack of effort by the AO to verify the information received and the failure to conduct individual assessments of alleged bogus shareholders.

7. Final Decision:
The Tribunal dismissed the appeal of the revenue, affirming the deletion of the addition of share application money under section 68 of the Income Tax Act, 1961.

This detailed analysis of the judgment underscores the procedural and evidentiary requirements in cases involving additions under section 68 of the Income Tax Act, emphasizing the importance of fulfilling the onus of proof and conducting thorough verification before making such additions.