2016 (11) TMI 323 - AT - Income Tax

Addition u/s 68 - unexplained share application money - assessment u/s 153C - Held that - When undisputedly AO has perused the relevant details pertaining to the share capital / share premium qua the year under assessments as furnished by the assessee company and has not minced a word to question the validity of those documents nor the AO has given any findings regarding the summons issued u/s 131 of the Act for personal deposition and furnishing of details by the investors in the assessee company. Even no statement of these investors was recorded by the AO. When all the shareholders appear before the AO and filed confirmations, bank statements, copy of ITRs for the AY 2007-08 to 2011-12, copy of PAN, name of directors, copy of audited accounts, etc. to establish the investment made by them in the assessee s company, their identity cannot be questioned on the basis of conjectures and surmises. In the absence of any adverse material on record that cash receipt/deposits were noticed in the bank accounts of these companies in question, the capacity of these investors cannot be questioned. Moreover, the assessee company has received the subscription of these shareholders through banking transactions. As assessee company has duly discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants who have subscribed to the shares during the years under assessment, u/s 68 of the Act, the assessee company cannot be faulted merely on the basis of conjectures and surmises particularly in the absence of any cogent material.Moreover, documents i.e. balance sheets and trial balance seized from the premises of M/s. Jagat Group pertains to the period 01.04.2010 to 04.09.2010, hence not relevant for the years under assessment. To apply the provisions contained u/s 153C, the seized material is required to be of relevant assessment year. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) under Section 153C.
2. Validity of additions made by AO treating share application money and share premium as unexplained cash credit under Section 68.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer (AO) under Section 153C:

The primary issue revolves around whether the AO who recorded satisfaction that the documents related to the assessee company (other than the searched person) had the jurisdiction to pass the assessment order under Section 153C. The Tribunal referred to the judgment in SSP Aviation Ltd. vs. DCIT, which established that the AO who records satisfaction that documents pertain to a third party (other than the searched person) must forward the documents to the AO having jurisdiction over that third party. The Tribunal emphasized that the AO who conducted the search had no jurisdiction over the assessee company and was only empowered to forward the seized documents to the concerned AO. The Tribunal further supported its decision by citing the CBDT Circular No. 24/2015, which mandates recording satisfaction for Section 153C proceedings. The Tribunal concluded that the assessment under Section 143(3) read with Section 153C was unsustainable as the satisfaction note was not recorded by the AO having jurisdiction over the assessee company, and no documents belonging to the assessee were found from the premises of M/s. Jagat Group.

2. Validity of Additions Made by AO Treating Share Application Money and Share Premium as Unexplained Cash Credit Under Section 68:

The AO had treated the share application money and share premium received by the assessee company as unexplained cash credit under Section 68, citing that the documents provided did not prove the capacity of the investors to make such investments. However, the Tribunal noted that the assessee had provided confirmation letters from share applicants, copies of bank accounts, ITR acknowledgments, and balance sheets, which the AO dismissed on conjectures and surmises. The Tribunal observed that the AO did not question the validity of the documents provided by the assessee nor recorded statements from the investors. The Tribunal emphasized that the identity, creditworthiness, and genuineness of the share applicants were established through banking transactions and relevant documents. The Tribunal found no adverse material on record to question the capacity of the investors and concluded that the assessee had duly discharged its onus under Section 68. The Tribunal also noted that the seized documents pertained to a period not relevant to the assessment years under consideration, making them inapplicable for Section 153C proceedings.

Conclusion:

The Tribunal upheld the CIT (A)'s decision, finding no illegality or perversity in the deletion of additions made by the AO. The appeals were dismissed, confirming that the AO lacked jurisdiction under Section 153C and that the assessee had adequately substantiated the share application money and share premium received. The order was pronounced in open court on 28th September 2016.