2018 (5) TMI 1085 - AT - Income Tax

Addition u/s.68 - unexplained share application money - Held that - The mere fact that assessee company chooses to show the receipt of the money as capital does not preclude the ITO from going into the question whether this is actually so. Where, therefore, the assessee company represents that it has issued shares on the receipt of share application money, then the amount so received would be credited in the books of account of the company. The ITO would be entitled to enquire, and it would indeed be his duty to enquire, whether the alleged shareholders do in fact exist or not. If the shareholders exist then, possibly, no further enquiry need be made. Set aside the orders of lower authorities and delete the addition of share application money of ₹ 12,58,000/- received from Ajit Keshari and ₹ 13,50,000/- received from Sri Aman Agarwal aggregating to ₹ 26,08,000/-. Thus, this part of the ground of appeal is allowed. With regard to share application money of ₹ 40,00,000/- received from four Private Limited Companies, we find that the findings of the Assessing Officer is that the Directors of said companies did not appear in response to summons issued u/s.131 of the Act All the corporate shareholders are assessed to income tax and have PAN Numbers. The CIT(A) could have made enquiries from the respective Assessing Officers and ascertained the current addresses. This has not been done. Further, as noted above, the Assessing Officer categorically accepts in the assessment order that summons issued u/s.131 of the Act was received by four share applicants. Thus, there is contradiction in the findings of the Assessing Officer and the CIT(A). It shall be in the interest of justice to set aside the orders of lower authorities and remand the matter back to the file of the Assessing Officer with a direction to make necessary enquiries from four corporate share applicants after allowing reasonable and proper opportunity of hearing to the assessee. The assessee is directed to co-operate with the Assessing Officer in verifying the four corporate share applicants. With these directions, this part of the ground is allowed for statistical purposes

Summary

Issues Involved:
1. Addition of ?66,80,000/- under Section 68 of the Income Tax Act on account of unexplained share application money.

Issue-wise Detailed Analysis:

1. Addition of ?66,80,000/- under Section 68 of the Income Tax Act on account of unexplained share application money:
The primary issue in this case revolves around the addition of ?66,80,000/- under Section 68 of the Income Tax Act, 1961, due to unexplained share application money. The Assessing Officer (AO) noted that the assessee claimed to have received share application money from six entities, including two individuals and four companies. Summons were issued to these shareholders, but there was no compliance. Consequently, the AO concluded that the genuineness of the transactions, identity, and creditworthiness of the shareholders were not proven, leading to the addition of ?66,08,000/- as unexplained share application money.

On appeal, the assessee argued that the shareholders could not appear due to insufficient time provided during the assessment proceedings. The assessee provided details of the companies' substantial assets and liabilities, asserting their creditworthiness. However, the CIT(A) called for a remand report, and the AO reiterated that the individual shareholders failed to explain the source of their investments with documentary evidence. Further, the AO's investigation revealed that the four company shareholders were shell companies, and their addresses were untraceable. The CIT(A) confirmed the addition, stating that the assessee failed to establish the creditworthiness and genuineness of the transactions.

Before the Tribunal, the assessee contended that the identity of the individual shareholders, who were directors of the company, was established as they were assessed to income tax and had provided their PAN numbers. The Tribunal referred to the decision of the Hon’ble Delhi High Court in the case of CIT vs. Sophia Finance Ltd., which held that if the shareholders exist, no further inquiry is needed. Additionally, the Tribunal cited the Hon’ble Supreme Court's decision in CIT vs. Lovely Exports Pvt Ltd., which stated that if the share application money is received from identifiable shareholders, the department can proceed to reopen the individual assessments.

The Tribunal found that the identity of the individual shareholders was established, and thus, deleted the addition of ?26,08,000/- received from them. However, regarding the ?40,00,000/- received from the four companies, the Tribunal noted contradictions in the findings of the AO and CIT(A). The AO admitted that the directors of the companies requested more time to appear, indicating their identity was established. The CIT(A) claimed that the companies were untraceable based on an investigation, but this was not confronted with the assessee. The Tribunal decided to set aside the orders of the lower authorities and remand the matter back to the AO for further verification of the corporate shareholders, ensuring a reasonable opportunity for the assessee to present their case.

In conclusion, the Tribunal partly allowed the appeal, deleting the addition related to individual shareholders and remanding the matter concerning corporate shareholders for further investigation.