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2016 (4) TMI 736 - AT - Income TaxUnexplained cash credit u/s 68 - share application money received by the assessee company from seven share applicants - Held that - In the instant case, the assessee had indeed proved the identity of the share applicants, creditworthiness of share applicants and genuineness of transactions beyond doubt by explaining firstly the source , secondly the source of source and thirdly the source of source of source. Moreover, the seven share applicants had duly confirmed the fact of making investment in share capital in the assessee company and the two jute companies had also confirmed the fact of having made the payments to the assessee company on behalf of the seven share applicants. CIT(A) dismissing the plea of the assessee, on the ground that the transactions of receipt of share capital from seven share applicants are in violation of provisions of Benami Transactions (Prohibition) Act, 1988, is not justified and unwarranted. Hence the addition made u/s 68 of the Act deserves to be deleted. See Jaydayal Poddar (Deceased) through L.R.s and Another vs Mst.Bibi Hazra and Others 1973 (10) TMI 55 - SUPREME COURT - Decided in favour of assessee
Issues Involved:
1. Whether the share application money received by the assessee company from seven share applicants amounting to ?1,25,49,980/- could be brought to tax under section 68 of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Nature and Source of Share Application Money: The primary issue was whether the share application money received by the assessee company from seven share applicants could be considered unexplained cash credit under section 68 of the Income Tax Act, 1961. The assessee is a public limited company engaged in manufacturing and trading of industrial products. The Assessing Officer (AO) doubted the creditworthiness of the seven corporate entities who invested in the assessee company’s shares, amounting to ?1,25,49,980/-. The AO observed that these entities had minimal paid-up capital and income, and the money for share application was provided by other companies directly to the assessee. The AO concluded that these share applicants were mere conduits for the assessee’s undisclosed income and added the amount as unexplained cash credit. 2. Assessee’s Evidence and Arguments: The assessee provided several documents to prove the legitimacy of the share application money, including: - Audited Balance Sheets of the seven share applicant companies. - IT Return acknowledgements for the relevant assessment year. - Confirmations from the share applicants and the companies that issued cheques on their behalf. - Bank statements of the companies involved. - Confirmation from the companies that advanced money on behalf of the share applicants. The assessee argued that the identity, creditworthiness, and genuineness of the transactions were proven beyond doubt. The funds were advanced by two jute companies, which had substantial business operations and turnover, and the payments were made through account payee cheques. 3. CIT(A)’s Findings: The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s addition, invoking section 3 of the Benami Transactions (Prohibition) Act, 1988, and concluded that the transactions violated the said provisions. The CIT(A) reiterated the AO’s observations and dismissed the assessee’s appeal. 4. Tribunal’s Analysis and Conclusion: The Tribunal analyzed the evidence and arguments presented by both parties. It found that: - The identity of the share applicants was established through PAN, balance sheets, and IT returns. - The creditworthiness was demonstrated by the fact that the share applicants received funds from two jute companies, which had significant business operations and turnover. - The genuineness of the transactions was confirmed by the direct payment of share application money to the assessee by the jute companies through account payee cheques. The Tribunal also noted that the AO’s addition was based on suspicion and conjecture rather than concrete evidence. The Tribunal referred to several judicial precedents, including decisions of the Hon’ble Delhi High Court and the Supreme Court, which emphasized that additions under section 68 cannot be made based on mere suspicion. 5. Benami Transactions (Prohibition) Act, 1988: The Tribunal found that the CIT(A) did not provide any material evidence to prove that the transactions were benami. The burden of proving a benami transaction lies on the person asserting it, and mere conjectures or surmises cannot substitute for proof. The Tribunal cited Supreme Court decisions to support this view. Conclusion: The Tribunal concluded that the assessee had adequately explained the nature and source of the share application money, proving the identity, creditworthiness, and genuineness of the transactions. Consequently, the addition made by the AO under section 68 was deleted, and the appeal of the assessee was allowed. The Tribunal also held that the CIT(A)’s application of the Benami Transactions (Prohibition) Act, 1988, was unjustified and unwarranted.
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