2015 (11) TMI 1455 - HC - Income Tax

Addition made under Section 68 - ITAT deleted the addition - Held that - The Assessee had been asked by the CIT (A) to produce 7 directors of the Table III companies. 6 directors appeared and their statements were recorded. They had confirmed that they had subscribed to the share capital of the Assessee. These directors had not only produced the books of accounts but showed that the source of investment was duly recorded therein. The Revenue on the other hand did not produce any further evidence to dispute the above evidence produced by the Assessee. As far as Table II shareholders were concerned, if the Revenue was of the view that they were simply using the Assessee for parking their undisclosed income, then it was certainly open to the Revenue to make additions to the income of those Table-II companies. As far as Table-I shareholders was concerned, none of them denied having made the investment in the Assessee company. The AO does not appear to have undertaken any particular investigation into the affairs of the Table-I, II or Table III companies apart from issuance of the notices under Section 131 of the Act which were duly responded to. Detailed findings have been given by the ITAT in the present cases after a thorough examination of the records. These have been extracted hereinabove. The Court finds no reason to differ from the decision of the ITAT in its rejection of the very same contentions urged before the Court by the Revenue. In particular, the Court concurs with the ITAT that the mere fact that some of the investors have a common address is not a valid basis to doubt their identity or genuineness. Also, the fact that the shares of the Assessee were subsequently sold at a reduced price is indeed not germane to the question of the genuineness of the investment in the share capital of the Assessee. The question of avoidance of tax thereby may have to be examined in the hands of the person purchasing the shares.. Some of the investor companies for e.g., Quality Security Services Pvt. Ltd. (b) United Head Hunters Pvt. Ltd. and (iii) Wellset Pharma & Drugs Pvt. Ltd. have been shown to be filing returns and being assessed on a regular basis. Some of them have been shown to be in existence even before the incorporation of the Assessee. Indeed the Revenue was unable to produce material to substantiate its case that the genuineness and creditworthiness of the investors and the source of the money received by the Assessee by way of investments in the AYs in question was not satisfactorily explained by the Assessee. - Decided in favour of assessee.

Issues Involved: Limitation, Question urged, Background facts, Assessment order, Proceedings before the CIT (A), Impugned order of the ITAT, Submissions of counsel, Law concerning Section 68 of the Act, Reasons and decision, Conclusion.

Limitation:
The Court examined whether the appeals were filed within the stipulated limitation period. The impugned order was dated 29th April 2014, and the appeals were first listed nearly a year later on 10th April 2015. The certified copy of the ITAT's order was received by the CIT-3 on 1st August 2014, making the appeal filed on 19th March 2015 beyond the 120 days limitation period under Section 260A (2) (a) of the Act. However, the Assessee did not press the objection regarding the delay, allowing the Court to proceed with the merits of the appeals.

Question urged:
The primary question for consideration was whether the ITAT erred in deleting the addition made under Section 68 of the Act of share application money by holding that the identity and genuineness of the share applicants were established.

Background facts:
The Assessee, a company incorporated to run a shopping mall, had not commenced business by 31st March 2009. A search on the SVP Group of Companies, including the Assessee, revealed they received share capital from 106 companies. The Revenue alleged that the SVP Group charged 'on-money' for properties and routed it back as share application money, which was then used for further investments and booking bogus expenses.

Assessment order:
The AO held that the investments were not genuine, noting that many companies were not found at their given addresses, and the Assessee failed to produce shareholders for cross-examination. The AO added the sums shown as investments to the Assessee's income for the relevant AYs.

Proceedings before the CIT (A):
The Assessee filed appeals against the assessment orders. The CIT (A) upheld the AO's additions, leading the Assessee to appeal to the ITAT.

Impugned order of the ITAT:
The ITAT deleted the additions, noting that the Revenue could not deny the factual position that only 11 of the 20 companies in Table I were searched. The ITAT found that the Assessee had discharged its burden of proving the identity, genuineness, and creditworthiness of the shareholders. The ITAT distinguished the case from M/s. Nova Promoters and Finlease (P) Ltd., noting no similar admissions of benami accounts or accommodation entries.

Submissions of counsel:
The Revenue argued that the Assessee manipulated fund movements through paper companies and common directors, and that the Assessee bought back shares at a low price. The Assessee countered that it had provided all necessary documents to prove the identity, creditworthiness, and genuineness of the shareholders.

Law concerning Section 68 of the Act:
The AO has jurisdiction to enquire about the amount credited in the Assessee's books. The Assessee must prove the identity, genuineness, and creditworthiness of the creditors. The Department cannot draw adverse inferences merely because the creditors fail to respond to notices.

Reasons and decision:
The Court noted that the Revenue's broad allegation that the Assessee charged 'on-money' did not apply as the Assessee had not commenced business. The ITAT's detailed examination showed the Assessee had discharged its burden of proof. The Revenue failed to produce evidence to dispute the Assessee's evidence. The Court found no reason to differ from the ITAT's decision.

Conclusion:
The Revenue could not show any legal infirmity in the ITAT's order. No substantial question of law arose for determination, and the appeals were dismissed with no orders as to costs.

← Previous Next →