2019 (8) TMI 1333 - AT - Income Tax

Addition u/s 68 - share application money alongwith premium - HELD THAT - There is hardly any dispute between the parties inter alia about the basic admitted fact of the assessee to have raised the impugned share application money from eleven related parties, the AO having taken recourse to sec. 131/133(6) process in all of their cases, these investors having replied from the other end in support of the correctness of the share application money. The assessee s eleven share applicants confirmed the assessee s case by fling all necessary documentary evidence as well. There is further no issue between the assessee and the department about their identity, at least with satisfies first of the three relevant parameters identity genuineness and creditworthiness involving unexplained cash credits sec. 68 - We wish to emphasise here that all eleven parties happen to be assessee s associate concerns / individuals i.e. eight of them are its directors relatives and the remaining three turn out to group entities. Assessee has produced oral or documentary evidence. Learned departmental representative at this stage submits that there is no justification for assessee s extra-ordinary exorbitant premium in case of investor parties having meagre source of income. We find no merit in Revenue s stand since there is no evidence on record which could suggest that any of the assessee s eleven investor had been having any dubious transactions in their accounts. Assessing Officer erred in treating the assessee s share application / premium amount as unexplained cash credits in entirety. The CIT(A) s findings restricting the same to ₹75 lac only stand reversed therefore. - Decided in favour of assessee

Issues Involved:
1. Treatment of share application/premium amount as unexplained cash credits under Section 68 of the Income Tax Act.
2. Outstanding liability addition in the name of M/s Anirbana Ganguly.

Issue 1: Treatment of Share Application/Premium Amount as Unexplained Cash Credits under Section 68

The primary issue was whether the share application monies along with premium amounting to ?3,26,50,000/- disclosed by the appellant fall under the provisions of Section 68 of the Income Tax Act, which deals with unexplained cash credits. The Assessing Officer (AO) had treated this entire amount as unexplained cash credits, but the Commissioner of Income Tax (Appeals) [CIT(A)] restricted this to ?75 lakhs.

The CIT(A) detailed that the appellant received share capital money from eight individuals and three corporate bodies, all related to the appellant. The AO had issued notices under Section 133(6) to all share applicants, which were duly complied with, and summoned the director of the appellant company under Section 131. The director appeared and his statement was recorded. The share applicants provided their Permanent Account Numbers, income tax returns, audit reports, and financial statements, confirming their identity and genuineness of transactions.

Citing the Supreme Court's decision in CIT vs. Lovely Exports Ltd., the CIT(A) emphasized that if the share application money is received from identified subscribers, the Revenue should proceed against those subscribers if they are alleged to be bogus. The CIT(A) found that the AO did not provide evidence against the genuineness of transactions, except for the fact that some share application money was received in cash, which is not prohibited by law.

For corporate share applicants, such as Darjeeling Flour Mills Pvt. Ltd., Airview Sudhir Hotels & Tourism Pvt. Ltd., and Ranisati Tardelink Pvt. Ltd., the CIT(A) concluded that their identity, capacity, and genuineness were established based on their financial statements and responses to notices. The AO's adverse inferences were found to be baseless, leading to the deletion of additions made under Section 68 for these entities.

For individual share applicants, the CIT(A) reviewed their income, balance sheets, and other documents, concluding that the AO's addition of ?1,55,00,000/- as unexplained cash credits was incorrect. However, considering the lack of wealth tax returns and the substantial cash in hand claimed by these individuals, the CIT(A) partly upheld the AO's addition, allowing a reasonable estimate of cash in hand and confirming the balance as unexplained.

The Tribunal, upon reviewing the rival pleadings and the CIT(A)'s detailed discussion, found that the assessee had established the identity and genuineness of the transactions. The Tribunal referenced the Gujarat High Court's decision in PCIT vs. Gyscoal Alleys Ltd., which upheld the deletion of similar additions where the assessee had discharged its onus of proving the identity, genuineness, and creditworthiness of the investors. The Tribunal concluded that the AO erred in treating the entire amount as unexplained cash credits and reversed the CIT(A)'s findings, allowing the assessee's appeal and dismissing the Revenue's cross-appeal.

Issue 2: Outstanding Liability Addition in the Name of M/s Anirbana Ganguly

The assessee did not wish to press for its second substantive ground challenging the outstanding liability addition of ?3,21,590/- in the name of M/s Anirbana Ganguly. Consequently, this addition was confirmed.

Conclusion:

The assessee's appeal was partly allowed, and the Revenue's cross-appeal was dismissed. The Tribunal reversed the CIT(A)'s restriction of the addition to ?75 lakhs, allowing the assessee's appeal regarding the share application/premium amount. The outstanding liability addition in the name of M/s Anirbana Ganguly was confirmed as the assessee did not press this ground. The order was pronounced in the open court on 28/08/2019.

← Previous Next →