2015 (6) TMI 1242 - AT - Income Tax

Addition on account of share application money - AO observed that Shri Jasbir Singh was able to substantiate his sources of investment from sale proceeds of agricultural land but Shri Vinod Kumar could not do so - HELD THAT - Shri Vinod Kumar was a man of means, his creditworthiness was proved and the identity was not in doubt since the assessee produced Shri Vinod Kumar before the AO who recorded his statement wherein the investment in the shares was admitted, copy of the share certificate, is placed of the assessee s paper book which revealed that 10,000 shares having destructive nos. 16,501 to 26,500 were allotted to Shri Vinod Kumar vide certificate no. 22, therefore, the genuineness of transaction can also not be doubted. From the above facts, it is clear that the asseseee proved the identity and creditworthiness of Shri Vinod Kumar as well as the genuineness of transactions therefore, the addition made by the AO and sustained by the ld. CIT(A) was not justified, accordingly the same is deleted. - Decided in favour of assessee. Deemed dividend addition u/s 2(22)(e) - As per DR common share holders having more than 20% share holding in the assessee company and M/s Precision Stock and Credit Pvt. Ltd. which was having an accumulated profits - HELD THAT - Assessee who was engaged in the real estate business received an advance against the sale of land, therefore it was in the nature of business transaction - the assessee company is not the shareholder in M/s Precision Stock Credit Pvt. Ltd. and received the amount from the said company in the course of ordinary business activities. Therefore the provisions of section 2(22)(e) of the Act were not applicable. We, therefore, by considering the totality of the facts deem it appropriate to delete the impugned addition made by the AO and sustained by the Ld. CIT. - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of addition of Rs. 10,00,000/- on account of share application money.
2. Confirmation of addition of Rs. 5,79,203/- on account of advance received against the land invoking the provision of section 2(22)(e) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Confirmation of addition of Rs. 10,00,000/- on account of share application money:

The Assessee filed an e-return declaring nil income, which was processed under Section 143(1) and later selected for scrutiny. During the assessment, the Assessing Officer (AO) noticed that the Assessee raised share capital, including share premium, amounting to Rs. 10,00,000/- from Shri Vinod Kumar and Rs. 6,50,000/- from Shri Jasbir Singh. The AO requested confirmations and sources of investment from these shareholders and asked for their production. While Shri Jasbir Singh substantiated his investment from the sale of agricultural land, Shri Vinod Kumar could not satisfactorily explain his sources. Despite presenting various documents and his statement, the AO found inconsistencies in Shri Vinod Kumar's claims, particularly regarding the ownership of agricultural land and the cash loan refund. Consequently, the AO added Rs. 10,00,000/- to the Assessee's income as unexplained credits under Section 68.

The Assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], providing evidence to prove Shri Vinod Kumar's identity and creditworthiness, including share application forms, share certificates, confirmations, and land documents. However, the CIT(A) upheld the AO's addition, noting that Shri Vinod Kumar was not assessed to tax, lacked a PAN, and failed to provide credible evidence of his creditworthiness or the genuineness of the transaction, which was conducted in cash.

Upon further appeal, the Tribunal considered the submissions and documents provided by the Assessee, including the PAN card, annual return, share application form, share certificate, and Khasra Khatauni. The Tribunal found that Shri Vinod Kumar's identity and creditworthiness were established, and the transaction's genuineness was supported by evidence of agricultural produce sales and the refund of an advance given to Shri Jasbir Singh. Therefore, the Tribunal concluded that the addition of Rs. 10,00,000/- was unjustified and deleted it.

2. Confirmation of addition of Rs. 5,79,203/- on account of advance received against the land invoking the provision of section 2(22)(e) of the Income Tax Act:

The AO observed that the Assessee received an advance of Rs. 10,00,000/- from M/s Precision Stock and Credit Pvt. Ltd., where Shri Jasbir Singh held a significant shareholding. The AO noted that this company had accumulated profits of Rs. 5,79,203/- and invoked Section 2(22)(e) to treat the advance as deemed dividend, adding Rs. 5,79,203/- to the Assessee's income.

The Assessee contended before the CIT(A) that the advance was a business transaction for the sale of land, not a loan, and thus outside the purview of Section 2(22)(e). The Assessee also argued that M/s Precision Stock and Credit Pvt. Ltd. did not have sufficient accumulated profits to cover the advance and that the transaction was refunded in the next financial year. Despite these arguments, the CIT(A) upheld the AO's addition, emphasizing the common shareholding and accumulated profits.

On appeal, the Tribunal reviewed the agreement and evidence showing the advance was for a land sale, a normal business transaction. The Tribunal referred to the Jurisdictional High Court's ruling in CIT vs. Ankitech Pvt. Ltd., which clarified that advances for business transactions do not qualify as deemed dividends under Section 2(22)(e). Since the Assessee was not a shareholder in M/s Precision Stock and Credit Pvt. Ltd. and the transaction was in the ordinary course of business, the Tribunal ruled that Section 2(22)(e) was not applicable and deleted the addition of Rs. 5,79,203/-.

Conclusion:

The Tribunal allowed the Assessee's appeal, deleting both the additions of Rs. 10,00,000/- and Rs. 5,79,203/-, finding that the Assessee had adequately established the identity, creditworthiness, and genuineness of the transactions in question.