2021 (7) TMI 201 - AT - Income Tax

Addition u/s 68 - unexpalined share application money - CIT(A) has deleted the additions made u/s. 68 only in the case of six share applicant companies for the reason that, these companies have filed their replies to the AO, consequent to receipt of notices issued u/s. 133(6) of the Act and also as all these six companies have been assessed to tax by the AO u/s. 143(3) - HELD THAT - The assessee had submitted the source from where they have received funds for making investment in the assessee company. All the transactions are through banking channels and are documented. The ld. CIT(A) has deleted the addition made u/s. 68 of the Act of credits received from six companies, whose assessments were done u/s. 68 of the Act. The Section 68 additions of the other companies were confirmed by the ld. CIT(A). The issue before us is whether this deletion of the part of the addition made u/s. 68 of the Act by the ld. CIT(A) is in accordance with law. This Bench of the Tribunal in various decisions has taken a view that wherever the assessments of the share applicant companies have been made u/s. 143(3) of the Act, the amount received as share application money from these companies cannot be added u/s. 68 of the Act. As decided in M/S. GOODPOINT COMMODEAL PVT. LTD. 2019 (6) TMI 600 - ITAT KOLKATA both the nature source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax assessments u/s. 143(3) were placed on record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 - Decided in favour of assessee.

Summary

Issues Involved:

1. Legitimacy of Share Application Money under Section 68 of the Income Tax Act, 1961.
2. Assessment of Share Applicant Companies under Section 143(3).
3. Validity of the Assessing Officer’s (AO) Inquiry and Evidence Evaluation.
4. Legal Precedents and Tribunal Decisions Impacting the Case.

Issue-wise Detailed Analysis:

1. Legitimacy of Share Application Money under Section 68 of the Income Tax Act, 1961:

The Revenue filed an appeal against the deletion of additions made under Section 68 of the Act by the CIT(A). The AO had added ?94,90,50,000/- to the assessee’s income, considering the share application money received from eight companies as non-genuine. The AO’s primary contention was that these companies had received credits in their accounts before subscribing to the share capital, indicating bogus transactions.

2. Assessment of Share Applicant Companies under Section 143(3):

The CIT(A) deleted the additions for six out of the eight companies, noting that these companies had been assessed under Section 143(3) for the same assessment year. The CIT(A) reasoned that the identity and creditworthiness of these companies were established through their tax assessments. The Tribunal upheld this view, stating that once a company is assessed under Section 143(3), the share application money received from it cannot be added under Section 68.

3. Validity of the Assessing Officer’s (AO) Inquiry and Evidence Evaluation:

The AO issued notices under Section 133(6) to all share applicant companies and received responses, but did not issue summons under Section 131 to most of them. The Tribunal noted that the AO failed to conduct a thorough inquiry and relied on assumptions. The assessee provided comprehensive documentation, including ITRs, balance sheets, bank statements, and other relevant documents, proving the genuineness of the transactions.

4. Legal Precedents and Tribunal Decisions Impacting the Case:

The Tribunal cited several legal precedents, including the Supreme Court’s decision in CIT vs. Lovely Exports Pvt. Ltd., which held that if the share application money is received from genuine shareholders, the Department should assess the shareholders, not the recipient company. The Tribunal also referenced the Delhi High Court’s decision in CIT vs. Gangeshwari Metal Pvt. Ltd., emphasizing that the AO must conduct a meaningful inquiry and cannot reject evidence without proper examination.

Conclusion:

The Tribunal dismissed the Revenue’s appeal, upholding the CIT(A)’s decision to delete the additions made under Section 68 for the six companies assessed under Section 143(3). The Tribunal emphasized the need for the AO to conduct thorough inquiries and not rely on presumptions. The decision reinforced the principle that once a company is assessed under Section 143(3), the share application money received from it cannot be added under Section 68 without substantial evidence to the contrary.