2015 (10) TMI 1495 - AT - Income Tax

Addition on account of share capital receipts - whether the assessee failed to establish the identity, credit worthiness and genuineness of the transaction despite adequate opportunity - CIT(A) deleted the addition - Held that - In the present case, it appears that the AO wrongly presumed that the deposit of ₹ 20,00,000/- made by M/s D.N. Kansal Securities Pvt. Ltd. who was a regular client of the assessee, was received as a share application money. The said amount was received by the assessee in normal course of business as a margin money which was taken as per the normal trade practice prescribed by National Stock Exchange of India. The ld. CIT(A) verified the above facts from the copy of account furnished before him. In the present case, the AO had also not controverted this submission of the assessee that the amount in question was received from a regular client who had executed business in the stock market through the assessee. Therefore, the addition made by the AO was not justified and the ld. CIT(A) rightly deleted the same. We do not see any valid ground to interfere with the findings given by the ld. CIT(A) - Decided in favour of assessee.

Summary

Issues:
- Whether the addition of Rs. 20,00,000 on account of share capital receipts was valid, considering the failure to establish identity, credit worthiness, and genuineness of the transaction.

Analysis:
1. The appellant, engaged in finance and share broking, filed a return declaring income. The AO received information about a Rs. 20,00,000 accommodation entry, leading to a notice under section 148. The AO added the amount under section 68 as allegedly bogus share capital.

2. The assessee contended before the CIT(A) that the amount was not share application money but part of regular share trading business receipts. The AO was criticized for not verifying transaction details submitted by the assessee, blindly acting on external information. The CIT(A) noted the client's regular business with the assessee and the absence of any share application money receipt.

3. The CIT(A) emphasized that the AO failed to establish receipt of share application money, as claimed, and did not refute the client's regular business relationship with the assessee. The addition was deemed unsustainable, citing the judgment in CIT Vs Vishal Holding & Capital Pvt. Ltd.

4. The department appealed, arguing for verification of the amount's nature, whether share capital or business-related. The assessee reiterated document submission and denied receiving share application money, stating the deposit was for business purposes and repaid accordingly.

5. The Tribunal found the AO's presumption of share application money incorrect, noting the amount was margin money from a regular client for business purposes. The CIT(A)'s deletion of the addition was upheld, as the AO failed to challenge the nature of the transaction or the client relationship, leading to dismissal of the department's appeal.