2017 (3) TMI 1169 - AT - Income Tax

Share application money treated as income from undisclosed sources u/s 68 - whether the assessee has discharged its onus in terms of requirements of section 68 in respect of each of the persons, who have alleged to have paid money to the assessee company - Held that - On perusal of the documents and observations mentioned above in respect of the 29 persons, we find that in support of the identity of these persons, the assessee has submitted copy of either ration card or voter identity card or driving licence etc and out of 29 persons, 19 persons were produced before the Assessing Officer also, thus, the identity of those persons cannot be doubted. However, in support of creditworthiness, the assessee has submitted copy of proof of agriculture land holding in case of only six persons, namely, Shree Vijay Veer Singh, Sh Yograj Singh, Sh Mahipal Singh, Sh Harpal Singh, Sh Ram Prasad Singh, and Sh. Khoob Singh. Only one person, Sh Krisna Kumar filed copy of PAN card. Though in the statements, it is claimed by Sh. Vijay Veer Singh, Sh Karmapal Singh, Sh Krishnapal Gehlot, Sh Karma Veer Singh etc. that money was invested out of sale of crops, but no evidence in support of sale of crops was filed before either the lower authorities or before us. In case of Sh. Nanu Singh, the copy of ration card available on page 16 of the paper book, shows annual income of the family at ₹ 2000 only and which in our opinion is not sufficient to explain the investment of ₹ 30,000/-by him. Similarly, Sh Harpal Singh has shown investment of ₹ 35000/- in share application money, whereas in the Ration card of Sh. Harpal Singh, annul income of ₹ 9500 has been shown, which is not sufficient to explain his investment . Sh. Deepak Kumar made investment of ₹ 2.5 lakh in the share application money and stated that said investment was out of reward of ₹ 3 lakh from custom and Central excise Department. In support of the creditworthiness of Sh. Deepak Kumar, the assessee has submitted a certificate from office of the customs and Central excise, which is available on page 110 of the assesses paper book. On perusal of the certificate we find that name of Sh Deepak Kumar, is not appearing in the said certificate. No other evidence like copy of return of income etc was filed supporting the receipt of such income in the hand of Sh. Deepak Kumar. The facts and circumstances of the case, we conclude that the impugned transactions accepting share application money by the company do not appear to be genuine transactions. Mere filing of copy of share certificates in the name of persons, cannot lead to genuineness of the transaction - Decided against assessee

Issues Involved:
1. Confirmation of addition of ?13,90,000 received as share application money.
2. Legitimacy of the share application money as actual share application money.
3. Compliance with the Companies Act, 1956 regarding authorized share capital.
4. Consideration of oral and documentary evidence by the CIT(A).

Issue-wise Detailed Analysis:

1. Confirmation of Addition of ?13,90,000 Received as Share Application Money:
The assessee, a private limited company, filed its return of income for the assessment year 2000-01, declaring a total income of ?1,33,220/-. The return was processed under section 143(1) of the Income-tax Act, 1961, and later reopened under section 147. During the reassessment, the assessee disclosed ?13,90,000 as share application money from 29 individuals. The Assessing Officer (AO) treated this amount as income from undisclosed sources under section 68, citing reasons such as the entire share application money being received in cash, only five out of 29 applicants being assessed to income tax, and the authorized share capital at the time being only ?1 lakh. The AO also noted inconsistencies in the statements of the share applicants and concluded that the share application money was introduced in the names of bogus shareholders to explain the source of investments in Indira Vikas Patras (IVPs) found during a CBI search.

2. Legitimacy of the Share Application Money as Actual Share Application Money:
The CIT(A) initially deleted the addition, but the Tribunal restored the matter to the AO for further examination of the share applicants. Upon reassessment, the AO reiterated the addition, stating that the assessee failed to prove the identity, genuineness, and creditworthiness of the share applicants. The CIT(A), in the subsequent appeal, upheld the AO's findings, emphasizing that the financial strength of the investors was not established, and the transactions were not genuine. The Tribunal concurred, noting that the assessee failed to discharge its onus under section 68, as the transactions did not appear genuine based on surrounding circumstances and human probabilities.

3. Compliance with the Companies Act, 1956 Regarding Authorized Share Capital:
The CIT(A) held that the paid-up share capital and share application money could not exceed the authorized share capital, which was only ?1 lakh at the time of receipt of the share application money. The Tribunal found this issue academic, as it had already upheld the addition of ?13,90,000 as unexplained under section 68, rendering the compliance with the Companies Act irrelevant in this context.

4. Consideration of Oral and Documentary Evidence by the CIT(A):
The CIT(A) and the Tribunal both considered the oral and documentary evidence submitted by the assessee. The Tribunal noted that out of 29 share applicants, the assessee produced 19 before the AO, who confirmed their investments. However, the AO found the statements of these applicants to be almost identical and tutored, with no credible evidence of their creditworthiness or the genuineness of the transactions. The Tribunal also observed that the affidavits submitted were similarly worded and filed on stamp papers purchased in bulk, raising doubts about their authenticity.

Conclusion:
The Tribunal upheld the findings of the lower authorities, concluding that the assessee failed to prove the identity, creditworthiness, and genuineness of the share application money. The appeal was dismissed, and the addition of ?13,90,000 as unexplained income under section 68 was confirmed. The Tribunal emphasized that mere submission of names and addresses of shareholders was insufficient to discharge the onus under section 68, especially when the surrounding circumstances and human probabilities indicated that the transactions were not genuine.

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