2017 (11) TMI 503 - AT - Income Tax

Addition as unexplained cash credit - share application money received from Smt. Pammi Sandesara, daughter of one of the directors of the assessee-company - Held that - We have noticed that the relationship between the assessee-company and the shareholder is well established in the sense that the shareholder is the daughter of one of the directors of the company. It is, therefore, not a transaction between two strangers. We have also noticed that the earning statements of Smt. Pammi Sandesara s husband and her bank accounts show prima facie evidence of the means of the shareholder. The amounts have been received through the banking channels. Bearing in mind all these factors, in our considered view, the receipts from Smt. Pammi Sandesara cannot be treated as unexplained cash credit. We, therefore, deem it fit and proper to delete the impugned addition - Decided in favour of assessee.

Summary

Issues:
Challenge to correctness of CIT(A)'s order on assessment under Section 143(3) for the assessment year 2010-11. Addition of cash credit in respect of share application money received from a specific individual.

Analysis:
The appeal challenged the correctness of the order by CIT(A)-III, Baroda regarding the assessment under Section 143(3) for the year 2010-11. The grievance primarily focused on the addition of ?19,00,000 as cash credit related to share application money received from Smt. Pammi Sandesara, who is the daughter of one of the directors of the assessee-company. The Assessing Officer raised concerns about the source of funds and creditworthiness of Smt. Pammi Sandesara, leading to the addition of the share subscription money as unexplained cash credit. The assessee's explanation, including the origin of funds from the USA and transactions through banking channels, was not accepted by the Assessing Officer, resulting in the addition. Subsequently, the matter was taken to the CIT(A) without success, prompting the appeal before the ITAT.

During the proceedings before the ITAT, the counsel for the assessee presented evidence such as Smt. Pammi Sandesara's passport indicating her USA residency, her husband's earning statements from a US company, and the familial relationship between the shareholder and one of the company directors. It was highlighted that payments and receipts were conducted through legitimate banking channels. On the other hand, the Departmental Representative could not counter these arguments effectively, emphasizing that the evidence was not previously submitted to the lower authorities. The ITAT acknowledged the established relationship between the assessee-company and the shareholder, emphasizing that it was not a transaction between unrelated parties. Additionally, the earning statements and bank account transactions of Smt. Pammi Sandesara provided prima facie evidence of her financial means, supported by transactions through banking channels. Considering these factors, the ITAT concluded that the receipts from Smt. Pammi Sandesara should not be treated as unexplained cash credit, leading to the decision to delete the contested addition. Consequently, the appeal was allowed, and the addition was removed by the ITAT's order dated September 21, 2017.