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2024 (8) TMI 541 - AT - Income TaxUnexplained credit u/s 68 - assessee has failed to prove the identity of the share applicants - identity of the share applicants was not proved even though all the shareholders have responded to the summons u/s 131 of the Act, appeared before the AO - HELD THAT -The assessee proved the identity and the genuineness of the transactions. In so far as the creditworthiness of the shareholders is concerned, we observe that all the shareholders have deposed in their statements giving the sources for investments in the assessee company. If at all if the AO had any doubts for the creditworthiness of the shareholders he could have proceeded against the shareholders. As decided in J.D. Securities and Finance Ltd. 2013 (2) TMI 452 - ALLAHABAD HIGH COURT if the assessing authority is not satisfied with the creditworthiness of the shareholders it is opened to the AO to verify the same in the hands of the shareholder and not in the hands of the assessee company. Similar view has been taken in the case of CIT Vs. Nav Bharat Duplex Ltd. 2013 (2) TMI 44 - ALLAHABAD HIGH COURT Also find that in the case of CIT Vs. Mishra Preservers Pvt. Ltd. 2013 (4) TMI 13 - ALLAHABAD HIGH COURT that if the shareholders are identified and they are not fictitious persons, the payments are made by cheques and were assessed to Income tax there cannot be any addition u/s 69 of the Act. On perusal of copy of ITR/Bank statement of all the parties who have applied for shares in the assessee company, it has been observed that the applicants have sufficient balance in their account to apply for shares and all the transactions have been done through banking channel . We observe that the Ld.CIT(A) on examining the information filed by the assessee in the form of confirmation, ITR, Bank statements, PAN details and also since there was no adverse material in the course of search to prove that the share application money is bogus and also assessee has proved the identity, genuineness and creditworthiness of the shareholders and deleted the addition made by the AO in respect of share application money from shareholders - Decided in favour of assessee. Ad hoc disallowance of expenses on the ground that certain expenses incurred on various heads were not supported by proper bills and vouchers - HELD THAT - Except stating that the expenses were not supported by bills and vouchers the AO failed to pinpoint any particular expenses for which bills and vouchers were not present. On perusal of the CIT(A) order, we observe that the ad hoc disallowance was deleted observe that the AO did not point out any defect in the books of account, the books were not rejected and, therefore, there is no justification for making ad hoc disallowance. Thus, we do not see any infirmity in the order of the Ld.CIT(A) in deleting the ad hoc disallowance made by the AO in support of unverifiable vouchers. This ground of Revenue is rejected. Addition u/s 68 - share application money unexplained - AO treated the shareholders as not genuine as the assessee did not produce the ITRs and bank statements without making further enquiries - HELD THAT - Most of the shareholders invested in the company are all small time investors, wherein they have invested amounts ranging from Rs. 480/- to Rs. 60,000/- and it cannot be said that the small time investors have no source to invest such a small amounts ranging from Rs. 480/- to Rs. 60,000/-. AO accepted share application money to the extent of Rs. 1,10,98,200/- out of Rs. 1,31,42,420/- and what was remained was Rs. 20,44,620/- and most of this amount came from all small time investors who have invested small amounts ranging from Rs. 480/- to Rs. 60,000/-. Therefore, the creditworthiness of the small time investors who have invested in the limited company of the assessee ranging from Rs. 480/- to Rs. 60,000/- cannot be doubted on the ground that the Assessee did not file bank statements and ITRs of these investors ignoring the share application forms and copy of receipts filed by the Assessee Thus, held that once the assessee proves the identity of the shareholder the onus on the assessee to prove the source of share application money stands discharged. AO should have accepted the investment made by the small time investors in the assessee which is a limited company. Thus, we are of the view that the assessee has proved the identity, creditworthiness and genuineness of the transactions of the shareholders and, therefore, direct the AO to delete the addition - Assesee appeal allowed.
Issues Involved:
1. Deletion of addition of Rs. 2,19,91,020/- as share application money. 2. Deletion of addition of Rs. 2,19,86,960/- as share application money. 3. Deletion of ad hoc disallowance of Rs. 3,00,000/-. 4. Addition of Rs. 22,02,620/- as share application money for AY 2009-10. Detailed Analysis: Issue 1: Deletion of addition of Rs. 2,19,91,020/- as share application money The Revenue's appeal contested the deletion of an addition of Rs. 2,19,91,020/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961. The AO had treated this amount as unexplained credit, arguing that the assessee failed to prove the identity, creditworthiness, and genuineness of the transactions. The AO had issued summons under Section 131 to the shareholders, who appeared and provided statements and documents. However, the AO found that the shareholders could not satisfactorily explain the sources of credits in their bank accounts. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, noting that the shareholders had provided necessary documents like bank statements, confirmations, and Income Tax Returns (ITRs). The CIT(A) cited various judicial precedents, including CIT Vs. Lovely Exports Pvt. Ltd. and CIT Vs. Stellar Investments Ltd., to support the deletion. The Tribunal upheld the CIT(A)'s decision, stating that the identity and genuineness of the transactions were proven and that any doubts regarding the creditworthiness of the shareholders should be investigated in their hands, not in the hands of the assessee company. Issue 2: Deletion of addition of Rs. 2,19,86,960/- as share application money The AO had made a similar addition of Rs. 2,19,86,960/-, treating it as unexplained credit under Section 68. The assessee had furnished additional evidence before the CIT(A), including confirmations, bank statements, and ITRs of the shareholders. The CIT(A) admitted these additional evidences under Rule 46A(1)(b) of the Income Tax Rules and forwarded them to the AO for a remand report. The AO's remand report confirmed that the shareholders had sufficient balances in their accounts and that all transactions were done through banking channels. Based on the remand report and the additional evidence, the CIT(A) deleted the addition. The Tribunal upheld this decision, noting that the AO had accepted the sufficiency of balances and the genuineness of transactions in the remand report. The Tribunal also cited various judicial precedents to support the deletion. Issue 3: Deletion of ad hoc disallowance of Rs. 3,00,000/- The AO had made an ad hoc disallowance of Rs. 3,00,000/- on the grounds that certain expenses were not supported by proper bills and vouchers. The CIT(A) deleted this disallowance, observing that the AO had not pointed out any specific defects in the books of accounts or identified particular expenses that were not supported by vouchers. The Tribunal upheld the CIT(A)'s decision, noting that the AO had failed to provide specific details of the unsupported expenses. The Tribunal cited the decision of the Delhi Bench of the Tribunal in ACIT Vs. Ganpati Enterprises Ltd., which held that the AO must point out specific defects in the accounts and seek the assessee's explanation before making any disallowance. Issue 4: Addition of Rs. 22,02,620/- as share application money for AY 2009-10 For the assessment year 2009-10, the AO had made an addition of Rs. 22,02,620/- under Section 68, treating it as unexplained credit. The AO had accepted Rs. 1,10,98,200/- out of the total share application money of Rs. 1,31,42,820/- as genuine but treated the remaining amount as unexplained due to the lack of confirmations, bank statements, and ITRs. The CIT(A) sustained this addition, observing that the documents provided were insufficient to establish the identity or creditworthiness of the shareholders. The Tribunal, however, noted that the AO had accepted the majority of the share application money and that the remaining amount came from small-time investors who had invested small amounts ranging from Rs. 480/- to Rs. 60,000/-. The Tribunal held that the identity, creditworthiness, and genuineness of the transactions were proven and directed the AO to delete the addition of Rs. 22,02,620/-. Conclusion: The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, upholding the CIT(A)'s decisions to delete the additions and disallowances made by the AO. The Tribunal emphasized the importance of proving the identity, creditworthiness, and genuineness of transactions and cited various judicial precedents to support its decisions.
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