2022 (6) TMI 483 - AT - Income Tax

Unexplained share application money u/s. 68 - Assessment year - claim of the Ld. AR, that as the assessee company had not credited the amount in question in its books of account for the year under consideration - HELD THAT - The amount in question was credited in its books of account in the previous year pertaining to the immediately preceding assessment year i.e., AY 2011-12 and not during the year under consideration, we find substantial force in the same. On a perusal of the bank account of the assessee i.e., bank account no. 016105005758 with ICICI Bank Ltd., Branch Civil Lines, Raipur, we find that the aforesaid amount of Rs. 3 crore was undisputedly credited during the previous year relevant to the immediately preceding year i.e., AY 2011-12. As regards the support drawn by the department from the fact that the investment in the shares of the assessee company had been accounted for by the subscriber company viz., M/s. MSP Mines and Minerals Pvt. Ltd. in its balance sheet for the year under consideration i.e., AY 2012-13, we are afraid that the said fact would not assist the case of the department, for the reason that the same only refers to the period of allotment of shares which had occasioned during the previous year under consideration and not the credit of the amount in the books of account of the assessee company during the said period Our aforesaid view that an addition u/s.68 of the Act cannot be divorced from the year in which the same is credited in the books of account of the assessee is fortified by the judgment of the Hon'ble High Court of Delhi in the case of CIT Vs. Usha Stud Agricultural Farms Ltd. 2008 (3) TMI 91 - DELHI HIGH COURT - In its aforesaid order the Hon'ble High Court while approving the order of the Tribunal, had held, that as the credit balance appearing in the accounts of the assessee did not pertain to the year under consideration, therefore, the A.O was not justified in making an addition of the same u/s. 68 . Also, our aforesaid view that where the assessee had received share application money in the earlier year and, only shares were allotted to the applicants during the year under consideration, then, the provisions of Section 68 of the Act could not be invoked to make an addition in the hands of the assessee during the subsequent year i.e, the year in which shares were allotted is supported by case of DCIT, Circle-1 Vs. Global Mercantiles (P). Ltd. 2016 (1) TMI 1370 - ITAT KOLKATA . On the basis of our aforesaid deliberations, we are of the considered view, that as the amount of share application money of Rs. 3 crore (supra) was received and credited in the books of account of the assessee for the immediately preceding year i.e., AY 2011-12 and not in the year under consideration, therefore, there was no justification for the AO to have made an addition of the same as an unexplained cash credit u/s. 68 of the Act during the year under consideration i.e., AY 2012-13. - Decided in favour of assessee.

Issues Involved:
1. Legality and factual correctness of the CIT(A)'s order.
2. Addition of Rs. 3,00,00,000/- as unexplained share application money under Section 68 of the Income Tax Act, 1961.
3. Assessment year relevance for the addition of share application money.
4. Justification of share premium charged by the assessee company.

Issue-wise Detailed Analysis:

1. Legality and Factual Correctness of the CIT(A)'s Order:
The assessee challenged the order passed by the CIT(Appeals)-II, Raipur, which upheld the addition of Rs. 3 crore as unexplained share application money. The appeal was directed against the order dated 31.03.2017, arising from the A.O's order under Section 143(3) of the Income-Tax Act, 1961, dated 31.03.2015 for the assessment year 2012-13.

2. Addition of Rs. 3,00,00,000/- as Unexplained Share Application Money under Section 68 of the Income Tax Act, 1961:
The A.O observed that the assessee company received Rs. 3 crore from M/s. MSP Mining & Minerals Pvt. Ltd. as share application money for 12,000 shares with a face value of Rs. 10 and a share premium of Rs. 2,490 per share. The A.O issued a commission under Section 131(1)(d) of the Act and found that the share subscriber was not available at the given address. Consequently, the A.O held the amount as unexplained cash credit under Section 68 of the Act.

3. Assessment Year Relevance for the Addition of Share Application Money:
The assessee argued that the share application money was credited in its books during the previous year relevant to the assessment year 2011-12, not during the assessment year 2012-13. The Tribunal found substantial force in this argument, noting that the amount was credited in the bank account in four tranches during the previous year relevant to AY 2011-12. The Tribunal cited the Delhi High Court's judgment in CIT Vs. Usha Stud Agricultural Farms Ltd., which held that an addition under Section 68 cannot be made if the credit does not pertain to the year under consideration.

4. Justification of Share Premium Charged by the Assessee Company:
The CIT(A) questioned the high share premium of Rs. 2,490 per share, especially since the assessee had not commenced business activities. The assessee claimed the premium was justified due to promising future cash flows from its mining business. However, the CIT(A) found this claim unsubstantiated and upheld the A.O's view that the share premium was unjustified.

Tribunal's Decision:
The Tribunal vacated the addition of Rs. 3 crore made by the A.O under Section 68 of the Act for the assessment year 2012-13. It concluded that the share application money was indeed credited in the previous year relevant to AY 2011-12. Therefore, the A.O was not justified in making the addition for AY 2012-13. The Tribunal refrained from addressing other contentions regarding the merits of the case, as the primary issue was resolved in favor of the assessee.

Conclusion:
The appeal filed by the assessee was allowed, and the addition of Rs. 3 crore as unexplained cash credit under Section 68 was vacated. The order was pronounced in open court on 27th May 2022.

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