2017 (2) TMI 627 - AT - Income Tax

Addition made u/s.68 in respect of share application money received - Held that - On the basis of documentary evidence placed on record we found that the assessee has discharged the onus cast upon by proving the identity, genuineness and creditworthiness-of the parties from whom it had received share application money. In the case of assessee neither any statement was given by third party to the Investigation Wing in which they have mentioned specifically that assessee was involved in the arrangement nor AO has proved specific involvement of the assessee in the arrangement of introduction of own money in the garb of share application money. There was no such specific finding or evidence was made available by the Assessing officer to prove that money received by the assessee was not genuine and it came from the coffers of the assessee company. - Decided in favour of assessee

Summary

Issues Involved:
1. Addition made under Section 68 of the Income Tax Act for share application money received by the assessee.
2. The genuineness of transactions and the identity and creditworthiness of the shareholders.
3. The reliance on statements from third parties without cross-examination.
4. The applicability of judicial precedents and legal principles to the case.

Issue-wise Detailed Analysis:

1. Addition under Section 68 for Share Application Money:
The primary issue in both assessment years (2009-10 and 2010-11) was the addition made under Section 68 of the Income Tax Act concerning the share application money received by the assessee. The AO made these additions based on information from the investigation wing indicating that the companies providing the share application money were part of a group controlled by Mr. Mukesh Choksi, who was known for providing accommodation entries. The AO relied on the ITAT Mumbai's decision in "I.T.A. No.4912/Mum/2005" to substantiate that these companies were only involved in giving accommodation entries and had no genuine funds of their own.

2. Genuineness of Transactions and Identity and Creditworthiness of Shareholders:
The assessee provided various documents to establish the genuineness of the transactions and the identity and creditworthiness of the shareholders. These included:
- Certificates of incorporation.
- PAN details.
- Copies of income tax returns.
- Bank statements showing transactions through account payee cheques.
- Resolutions and confirmations from the shareholder companies.
Despite these submissions, the AO and CIT(A) upheld the additions, arguing that the companies were part of Mr. Mukesh Choksi's group and were engaged in providing bogus share capital.

3. Reliance on Statements from Third Parties without Cross-examination:
The assessee contested the reliance on statements made by Mr. Mukesh Choksi without being provided an opportunity for cross-examination. The AO did not furnish the material or statements on which the adverse conclusions were based, nor did they allow the assessee to cross-examine Mr. Mukesh Choksi. The Tribunal noted that the statements were general and did not specifically mention the assessee company. The Tribunal emphasized that without providing the assessee an opportunity to rebut the evidence or cross-examine the witness, the addition could not be justified.

4. Applicability of Judicial Precedents and Legal Principles:
The Tribunal relied on several judicial precedents to support its decision. Notably:
- The decision in the case of Lovely Export Pvt. Ltd. (216 ITR 195) by the Supreme Court, which held that if the share application money is received from alleged bogus shareholders whose names are given to the AO, the department is free to proceed against them but it cannot be regarded as undisclosed income of the assessee company.
- The Tribunal also cited decisions from other cases involving Mr. Mukesh Choksi's group, where similar additions under Section 68 were deleted, emphasizing that the identity, genuineness, and creditworthiness of the shareholders were established through documentary evidence.
- The Tribunal highlighted that the AO did not bring any contrary evidence to negate the documentary evidence provided by the assessee.

In conclusion, the Tribunal found that the assessee had discharged its onus by providing sufficient documentary evidence to prove the identity, genuineness, and creditworthiness of the shareholders. The reliance on Mr. Mukesh Choksi's statements without cross-examination and the lack of specific evidence against the assessee led to the conclusion that the additions under Section 68 were not warranted. Consequently, the appeals of the assessee were allowed, and the additions made by the AO and upheld by the CIT(A) were deleted.