2015 (9) TMI 1643 - AT - Income Tax

Addition treating the amount of share application money received as income of the assessee - Held that - The statement of Bank of Baroda of Satco reflecting the payment of four cheques to STSPL for sale of its own investment/shares of stock exchange was also filed before the lower authorities. Our attention was also invited to the contract note of Satco dated 3-9-2007, 4-9-2007, 5-9-2007 & 7-9-2007 reflecting the sale of shares/investments by STSPL on the stock exchange with trade date and also the order number, order time, trade number, trade time, name of shares, quantity, rate, service tax, STT charges, total amount of settlement, settlement period etc. Demat account of STSPL with Satco-CDSL showing debit of investment/shares sold was also placed on the record. The STSPL audited annual accounts, computation of income, assessment order under section 143(3) for assessment year 2008-09 & 2009-2010 duly reflected and the aforesaid amounts received from Satco and paid by STSPL towards 50% share application money was also placed on record. No justification in the addition made by the AO in respect of share capital received by the assessee for which not only identity but the source and genuineness was duly established. - Decided in favour of assessee.

Summary

Issues involved: Appeal against addition of share application money as income of the assessee under Section 143(3) for assessment year 2008-09.

Analysis:
1. The AO added Rs. 2.20 crores as income by treating share application money received as income of the assessee. The assessee submitted documents to substantiate the receipt, including a board resolution and a letter from the share applicant. However, the AO was not convinced, alleging that the share applicant failed to pay the balance amount, leading to forfeiture of the share application money by the assessee. The AO suspected tax evasion due to the share applicant's financial position. The assessee argued that the breach was by the share applicant, not the assessee, and relied on legal provisions and judicial precedents to support their case.

2. The ITAT found that the assessee, an investment company, had received share application money through proper banking channels from the share applicant. Despite multiple extensions, the share applicant failed to pay the balance amount, leading to the forfeiture of the share application money in the subsequent assessment year. The ITAT noted that the assessee had fulfilled all conditions regarding the source of funds, identity verification, and compliance with legal requirements. The ITAT reviewed extensive documentary evidence provided by the assessee, including bank statements, audited accounts, and transaction details, to establish the genuineness of the transaction.

3. The ITAT concluded that there was no justification for the AO's addition of the share capital as income, as the assessee had adequately proven the identity, source, and genuineness of the share application money received. Therefore, the ITAT allowed the appeal of the assessee, emphasizing the importance of documentary evidence in establishing the legitimacy of financial transactions.

In summary, the ITAT ruled in favor of the assessee, overturning the addition of share application money as income based on the comprehensive documentary evidence provided to establish the legitimacy of the transaction.