2016 (1) TMI 303 - AT - Income Tax

Unexplained cash credit u/s 68 - Held that - In the instant case, the assessee has filed the necessary details regarding names and addresses of the persons. It is an admitted fact that all the persons were summoned by the assessing officer and their statements were recorded. The alleged subscribers to the share capital, deposed before the assessing officer that they have subscribed to the share capital of the company and also they have source for the above investment and filed necessary documents regarding sources for investment in the form of proof of agricultural properties and also filed affidavits. Therefore, in our opinion the assessee has discharged initial burden cast upon it u/s 68 of the Act by furnishing the names and addresses of the persons. Once identity is proved, then the onus shifts to the assessing officer to prove otherwise. Therefore, the A.O. is not right in making additions to the share application money in the hands of the assessee company.- Decided in favour of assessee Additions towards flat advances received in cash from the customers - Held that - The A.O. made the additions without conducting any further enquiry about the genuineness of the transactions by summoning the concerned customers. The CIT(A), without appreciating the fact that these advances were returned to the customers, held that the assesse introduced its own unaccounted money under the guise of advance from customers. In our opinion, both the authorities failed to appreciate the fact that the so called advance was repaid to the customers by way of cheques. In view of the above factual position, we are of the opinion that the advances collected from customers towards flat bookings and later returned to the customers by way of account payee cheques cannot be at any stretch of imagination considered as assessee s income from undisclosed source. Therefore, we reverse the order of CIT(A) and direct the A.O. to delete the additions made on account of advance from customers. - Decided in favour of assessee

Issues Involved:
1. Addition on account of unexplained share application money.
2. Addition on account of flat advances received from customers.

Issue-wise Detailed Analysis:

1. Addition on Account of Unexplained Share Application Money:

The assessee company, engaged in the construction of apartment complexes, filed its return of income for the assessment year 2003-04. A search and seizure operation under Section 132 of the Income-Tax Act was conducted, leading to the reopening of the assessment under Section 153A. During the assessment proceedings, the Assessing Officer (A.O.) noted that the assessee received share application money of Rs. 25,84,904/-. The A.O. treated this share application money as unexplained cash credit under Section 68 of the Act, as the assessee failed to substantiate the creditworthiness and genuineness of the transactions.

The assessee contended before the CIT(A) that it had furnished the names, addresses, and affidavits of the subscribers, and that these shareholders had disclosed their investments in their income tax returns. The assessee argued that once the identity of the shareholders is established, the initial burden under Section 68 is discharged. The CIT(A), however, dismissed the appeal, stating that the assessee failed to prove the creditworthiness and genuineness of the transactions.

Upon further appeal, the ITAT observed that the A.O. did not doubt the identity of the subscribers, as their statements were recorded during the assessment proceedings. The ITAT noted that the assessee had provided necessary details regarding the names and addresses of the subscribers, and the subscribers had confirmed their investments and provided proof of sources. The ITAT held that the assessee had discharged its initial burden under Section 68, and the onus then shifted to the A.O. to prove otherwise. The ITAT relied on the Supreme Court judgment in CIT Vs. Lovely Exports Pvt. Ltd., which stated that if the share application is received from alleged bogus shareholders whose names are given to the A.O., the department is free to reopen individual assessments but cannot regard it as undisclosed income of the assessee company. Consequently, the ITAT directed the A.O. to delete the additions made towards share application money under Section 68 of the Act.

2. Addition on Account of Flat Advances Received from Customers:

The A.O. also noted that the assessee received advances from customers amounting to Rs. 8,00,540/- towards the sale of flats. The A.O. treated these advances as unexplained cash credit under Section 68, citing unsigned letters found during the search, which suggested that the assessee had routed its own money in the form of customer advances.

The assessee argued that it had received booking advances from prospective buyers, and upon cancellation of bookings by two customers, the advances were returned by cheques. The assessee contended that it is common in the construction business for customers to book flats and later cancel, and thus the advances collected and returned should not be treated as unexplained income.

The ITAT found merit in the assessee's arguments, noting that the advances were returned by account payee cheques, a fact not disputed by the revenue. The ITAT criticized the A.O. for not conducting further inquiries to verify the genuineness of the transactions by summoning the concerned customers. The ITAT held that the advances collected and subsequently returned to the customers could not be considered as the assessee's undisclosed income. Therefore, the ITAT directed the A.O. to delete the additions made on account of advances from customers.

Conclusion:

The ITAT allowed the appeal of the assessee, directing the deletion of additions made on account of unexplained share application money and flat advances received from customers. The ITAT emphasized the importance of discharging the initial burden under Section 68 and the necessity for the A.O. to conduct thorough inquiries to substantiate claims of unexplained income.

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