2017 (6) TMI 1353 - AT - Income Tax

Addition u/s 68 - Bogus share application money - HELD THAT - There is no doubt about the identities of the companies. However the genuineness of the transaction of the share application is proved by the confirmation and bank account. The confirmations have been submitted and the transaction has been made through Axis Bank vide different cheques and the copy of Bank Account has been furnished. The assessee even furnished before the AO the set of Balance sheet the copy of acknowledgment of Income Tax Return and the copy of share application the copy of the Board Resolution for the application for shares. CIT(A) has rightly relied upon the judgment of Lovely Exports Pvt. Ltd 2008 (1) TMI 575 - SC ORDER as referred by the Ld. AR of the assessee before him and hence rightly deleted the addition of Rs. 3, 00, 00, 000/- which does not need any interference on our part therefore we uphold the action of the Ld. CIT(A) on the issue - Decided in favour of assessee. Addition of gross receipts to the overall returned income - Addition to total profit @9% of receipts - HELD THAT - CIT(A) after considering the affidavit of the Managing Director of the company and also the submissions of the AR had observed that there is no doubt about the intentions of the assessee as they had agreed for the addition of 9% of the receipts of the work contract. Hence Ld. CIT(A) has rightly directed the AO to take the profit at 9% of gross receipts and account for the profit already shown in the P L Account which does not need any interference on our part hence we uphold the action of the Ld. CIT(A) on the issue in dispute and dismiss the ground no. 2 raised by the Revenue. We further note that since the Assessee has not filed any Application under Rule 46A of the I.T. Rules 1962 hence the question of contravention of Rule 46A does not arise. - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition made by the AO under Section 68 of the IT Act, 1961 on account of unproved share application and premium money.
2. Acceptance of additional evidence by the CIT(A) in contravention of Rule 46A of IT Rules, 1962.
3. Request to set aside the CIT(A) order and restore the AO order.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68:
The primary issue was whether the CIT(A) erred in deleting the addition of Rs. 3,00,00,000/- made by the AO under Section 68 of the IT Act, 1961, on account of unproved share application and premium money. The AO had noted that the net worth of the assessee company was not sufficient to justify receiving such high share premiums and observed that the investor companies did not exist at the given addresses. The AO's spot enquiries and subsequent investigation corroborated this, leading to the conclusion that the share applications were bogus.

However, the CIT(A) found that the assessee had submitted all necessary documentation, including confirmations, bank statements, balance sheets, ITR acknowledgments, and board resolutions. The CIT(A) emphasized that the identities of the companies were not in doubt and that the genuineness of the transactions was supported by the confirmations and bank accounts. The CIT(A) relied on the Supreme Court judgment in CIT vs. Lovely Exports Pvt. Ltd. (2008) 216 CTR 195, which 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 assessments in accordance with law. Consequently, the CIT(A) deleted the addition of Rs. 3,00,00,000/-, a decision upheld by the Tribunal, citing a similar ITAT decision in the case of Modinagar Rolls Ltd. vs. Additional Commissioner of Income Tax.

2. Acceptance of Additional Evidence:
The second issue was whether the CIT(A) erred in accepting additional evidence in contravention of Rule 46A of the IT Rules, 1962. The AO had made an addition of 10% of the gross receipts due to doubts about the authenticity of payment sheets, which showed common signatures. The assessee's Managing Director had agreed to an addition of 9% of the gross receipts during the assessment proceedings, and an affidavit to this effect was submitted to the CIT(A). The CIT(A) directed the AO to take the profit at 9% of gross receipts and account for the profit already shown in the P&L Account. The Tribunal noted that since the assessee had not filed any application under Rule 46A, the question of contravention of Rule 46A did not arise.

3. Request to Set Aside CIT(A) Order:
The Revenue sought to set aside the CIT(A) order and restore the AO's order. However, the Tribunal found that the CIT(A) had rightly adjudicated the issues based on the evidence and legal precedents. The Tribunal upheld the CIT(A)'s decisions on both the deletion of the addition under Section 68 and the acceptance of the 9% profit rate for gross receipts.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order and confirming that the addition of Rs. 3,00,00,000/- under Section 68 was rightly deleted and that the profit rate of 9% of gross receipts was correctly accepted. The Tribunal also clarified that there was no contravention of Rule 46A since no additional evidence application was filed by the assessee.