2016 (3) TMI 206 - AT - Income Tax

Addition u/s 68 on account of share application money received by the assessee - issue of notice u/s 133(6) came back un-served - Held that - Notice u/s 133(6) is issued by the AO could not be served on the share applicants and Inspector s report also shows that this companies do not exists at the given address, we are of the view that no fault can be found against the assessee for this. Instead of the assessee has persuaded these companies to file confirmation independently along with all the requisite details and those parties have responded submitting independent information before the AO. The AO instead of making any further enquiry with respect to those details has tried to analyze information contained in those submissions. According to us he should have proceeded to make inquiries with the assessing officers of those share applicant companies and should also have used extensive powers granted to him u/s 131 of the Act when there was an information available that these companies are dubious. Instead, Ld AO walked on the path shown by the assessee to issue notice u/s 133(6) of the Act. Ld AO found there is meager balance in the bank account of that company after issue of the cheques of share application to the assessee. It is not the case of the AO that money that has been deposited with the assessee company which is not properly explained. We failed to understand how the remaining meager bank balance in the bank account of share applicants can affect the transaction entered into by the share applicants with the assessee company. Further the late allotment of shares made by assessee to the share applicant may result in to some contravention of the Companies Act 1956 however that cannot be used for making an addition u/s 68 of the act as same is irrelevant. The ld DR could not controvert any of the findings given by the learned Commissioner of Income-tax (Appeals) and no infirmity was pointed out. In view of the above we confirm the order of the learned Commissioner of Income-tax (Appeals) for deleting the addition made u/s 68 of the Act - Decided in favour of assessee

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act, 1961.
2. Applicability of the Supreme Court judgment in the case of Lovely Exports (P) Ltd.
3. Proof of physical identity and existence of the share applicants.
4. Relevance of public issue in the applicability of the Lovely Exports (P) Ltd. judgment.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made Under Section 68 of the Income Tax Act, 1961:
The revenue contested the deletion of an addition of Rs. 58,00,000 made under Section 68 on account of share application money received by the assessee. The assessee, a private limited company, had received share application money from various companies and provided documentary evidence to establish the identity, creditworthiness, and genuineness of the transactions. Despite this, the Assessing Officer (AO) made the addition, citing that the share applicants did not exist at the given addresses and had minimal bank balances after issuing cheques. The Commissioner of Income-tax (Appeals) (CIT(A)) deleted the addition, noting that the assessee had discharged its onus by providing necessary documents and that the AO had not conducted further inquiries with the assessing officers of the share applicant companies.

2. Applicability of the Supreme Court Judgment in the Case of Lovely Exports (P) Ltd.:
The revenue argued that the judgment in Lovely Exports (P) Ltd. could not be extended to situations involving mechanisms to introduce unaccounted money through accommodation entry providers. The CIT(A) and the Tribunal, however, relied on this judgment, noting that the assessee had provided sufficient evidence to establish the identity and creditworthiness of the share applicants. The Tribunal observed that the AO should have pursued further inquiries rather than relying solely on the initial findings.

3. Proof of Physical Identity and Existence of the Share Applicants:
The AO's addition was partly based on the Inspector's report that the share applicants did not exist at the provided addresses. The assessee argued that it had submitted confirmations and other documents from the share applicants, who had independently confirmed their investments to the AO. The Tribunal noted that the AO should have used his powers under Section 131 to make further inquiries rather than solely relying on the Inspector's report and the unserved notices under Section 133(6).

4. Relevance of Public Issue in the Applicability of the Lovely Exports (P) Ltd. Judgment:
The revenue contended that the Lovely Exports (P) Ltd. judgment was not applicable in cases where share application money was not received through a public issue. The Tribunal rejected this argument, citing several High Court decisions where the Lovely Exports (P) Ltd. judgment was applied in cases involving private limited companies without public issues. The Tribunal affirmed that the principles laid down in Lovely Exports (P) Ltd. were applicable regardless of whether the share application money was received through a public issue or not.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 58,00,000 made under Section 68, concluding that the assessee had adequately discharged its onus to prove the identity, creditworthiness, and genuineness of the share applicants. The Tribunal also confirmed that the Lovely Exports (P) Ltd. judgment was applicable to the case, and the AO's failure to conduct further inquiries rendered the addition unsustainable. The appeal of the revenue was dismissed.

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