2016 (10) TMI 699 - AT - Income Tax

Unexplained unaccounted cash - share application money - seizure of cash during search - assessee contended that, cash was being carried for payment of freight etc - Held that - The assessee has to make the payment to the railway department through DD out of the cash withdrawn. This also proves that the assessee has made the payment for sugar transported from Latur between 01/04/2005 to 24/04/2006. Thus, there are contradiction in the finding given by the Assessing Officer. Even we noted that the voucher also has the same narration that the advance is given for making the draft for sugar trading at Latur. In his statement Shri Pradeep Kumar Gupta also stated that the money belongs to the company and is duly recorded in the books of the company. It is not a case where the money has been given by the company outside the books of account. Even no iota of evidence has been brought on record which may prove that the money has been given to Shri Pradeep Kumar Gupta by the company outside the books of account. In view of this fact, we are of the view that the nature and source of the said money is duly explained and it cannot be regarded to be an explained one. We, therefore, delete the addition of ₹ 25,40,000/- by setting aside the order of CIT(A). - Decided in favour of assessee Addition made u/s 68 - Held that - Both the applicants have the PAN and, they are being assessed to income tax. This proves their identity. Both the companies have the shareholders funds. The payment has been made through cheque and banking channels. Copy of their bank accounts were placed on record. The share application money were ultimately returned by the assessee to the respective share applicants as the shares could not be allotted. The party confirmed receipt of the payment. This fact has not been denied. This is a case where the payments received by the company from these parties amounting to ₹ 57,60,000/- has duly been paid back. This fact is apparent not only from their respective confirmation but also from the bank statement. The fact remains that no share was allotted to these companies. In our opinion, the assessee has duly discharged the onus as lie before the assessee. This is not the case where the share applicants are the bogus one and the company has deposited its own money. Had it been the case, the company would have not refunded the money to both the applicants. In view of this fact, we set aside the order of CIT(A) and delete the addition made u/s 68 of the Act.- Decided in favour of assessee

Summary

Issues Involved:
1. Sustenance of addition of ?25,40,000/-.
2. Addition made on account of credit in share application amounting to ?1,15,20,000/-.

Issue 1: Sustenance of Addition of ?25,40,000/-

The first issue pertains to the addition of ?25,40,000/-. A search and seizure operation under Section 132(1) was conducted on 26/04/2006 on a passenger of Sahara Air Lines, who was found with ?25.37 lakh, of which ?25 lakh was seized. The individual claimed the cash belonged to M/s K. M. Sugar Mills Ltd. The assessee submitted that the cash was recorded in their books and was meant for business purposes. However, the Assessing Officer (AO) was not satisfied with the explanation, citing inconsistencies in the vouchers and the lack of details regarding the payment of freight. The AO treated the vouchers as questionable documents and made an addition of ?25,40,000/-.

Upon appeal, the CIT(A) confirmed the addition. However, the tribunal noted that the assessee had submitted vouchers signed by the individual carrying the cash, indicating the cash was for making a draft for sugar trading at Latur. The tribunal found that the cash was duly recorded in the books and there was no evidence of the cash being unaccounted for. The tribunal observed contradictions in the AO's findings regarding the payment of freight and noted that the cash was available with the assessee and was recorded in their books. The tribunal concluded that the nature and source of the money were duly explained and it could not be regarded as unexplained. Thus, the addition of ?25,40,000/- was deleted, setting aside the order of the CIT(A).

Issue 2: Addition on Account of Credit in Share Application Amounting to ?1,15,20,000/-

The second issue involves the addition of ?1,15,20,000/- as unexplained cash credit under the head 'share application money'. The AO added this amount due to the absence of details. The assessee contended that the AO did not make a specific query regarding the share application money during the assessment proceedings. The assessee provided details of the share application money, including resolutions, applications, and confirmations from the applicant companies, M/s Heritage Commodities Pvt. Ltd. and M/s Millennium Vanijya Pvt. Ltd., along with their financial documents.

The CIT(A) admitted the additional evidence and called for a remand report from the AO. The AO noted discrepancies in the payment methods mentioned in the application forms and the confirmatory letters. The AO also pointed out that the income tax returns of the applicant companies were filed after the assessment was completed. The CIT(A) confronted the assessee with the remand report, and the assessee provided a rejoinder, stating that the AO did not raise any query regarding the share application during the assessment proceedings. The CIT(A) called for another report from the AO, but the notices could not be served due to address issues.

The tribunal examined whether the assessee discharged the onus under Section 68 of the Act. It was noted that both applicant companies were income tax assessees with PAN and had filed their returns, proving their identity. The payments were made through banking channels, and the share application money was ultimately refunded as the shares were not allotted. The tribunal found that the assessee had duly discharged the onus, and the share applicants were not bogus. Thus, the addition of ?1,15,20,000/- was deleted, setting aside the order of the CIT(A).

Conclusion:

In conclusion, the tribunal allowed the appeal of the assessee, deleting the additions of ?25,40,000/- and ?1,15,20,000/- made by the AO and confirmed by the CIT(A).

(Order pronounced in the open court on 31/08/2016)