2011 (1) TMI 1359 - AT - Income Tax

Addition u/s 68 - Accommodation entries by way of bogus loans from entities - HELD THAT - We find that no addition can be made in the hands of the assessee company on account of share application money received. The assessee has filed necessary details for the purpose of proving that it had received actual share application money and the shares have been allotted. The main basis of the Department for making the addition is blank transfer certificates duly signed by the directors which were found from the possession of the manager of the assessee company, in our view, is not a sound basis as by finding blank transfer certificates does not disprove the reality. Reality is that assessee company has received share application money through account payee cheque. Shares have been allotted to the respective companies. The assessee company is showing the shareholders in its balance sheet and these companies are also showing the assets in their balance sheet in the shape of shares in the assessee company. All these companies are assessed to tax and, therefore, in our considered view, the addition sustained by learned CIT(A) is not justified. In the decision of CIT vs. Steller Investment Ltd. 1991 (4) TMI 100 - DELHI HIGH COURT , which has been affirmed by Hon ble SC in CIT vs. Steller Investment Ltd. 2000 (7) TMI 76 - SC ORDER . It has been clearly held that s. 68 shall not apply on the share application money. It was also held that If the Department wants to proceed to unearth the truth about source of funds, then they can reopen the cases of the above three companies from whom the share application money have been received and shares have already been allotted to them. In view of these facts and circumstances, we delete the entire addition for asst. yr. 2005-06. Appeal for asst. yr. 2005-06 - HELD THAT - In this case also no cross-examination was allowed to the assessee. Therefore, adverse inference cannot be drawn only on the statement of Shri Mukesh Choksi. We further noted that all other necessary details have been filed before AO. Amounts were received through account payee cheque. Both the companies are assessed to tax in Mumbai. Confirmation along with copies of share certificate bank statement memorandum of articles copy of share application money audited balance sheet and P L a/c of these parties were filed. These are similar details as were filed in case of three other companies for asst. yr. 2005-06. We have already disposed of the appeal for asst. yr. 2005-06 whereby we have held that the assessee has discharged its onus by filing necessary details. we cancel the entire addition made and confirmed by the lower authorities here also. In the result, appeals of the assessee are allowed.

Issues Involved:
1. Jurisdiction of AO.
2. Addition under Section 68 for share application money.
3. Disallowance of commission payment.

Issue-wise Detailed Analysis:

1. Jurisdiction of AO:
The jurisdiction of the Assessing Officer (AO) was challenged by the assessee in both appeals but was not pressed during the proceedings. Consequently, this ground was dismissed as not pressed for both assessment years.

2. Addition under Section 68 for Share Application Money:
For the assessment year 2005-06, the AO made an addition under Section 68 of Rs. 62.50 lakhs received as share application money from three companies: M/s Flex Mercantile India Ltd., M/s Micro Niryat Ltd., and M/s Antriksh Commerce (P) Ltd. Similarly, for the assessment year 2007-08, an addition of Rs. 50 lakhs was made for share application money received from M/s Talent Infoway Ltd. and M/s Buniyad Chemical Ltd.

The AO's basis for the addition was the non-genuineness of the transactions, supported by the fact that the companies were not traceable at the given addresses, and blank share transfer deeds and other documents were found during the search, indicating accommodation entries rather than genuine transactions. The Director of IT (Inv.), Mumbai, confirmed that the companies did not exist at the given addresses.

The CIT(A) upheld the AO's decision, emphasizing that the blank share transfer deeds and other documents found during the search indicated non-genuine transactions. The CIT(A) also noted that the companies were not traceable, and the affidavits and confirmations provided by the assessee were not sufficient to prove the genuineness of the transactions.

However, the Tribunal found that the payments were received through account payee cheques, and the companies were registered with the Registrar of Companies (RoC) and had valid PANs. The Tribunal referred to the Supreme Court's decision in CIT vs. Lovely Exports (P) Ltd., which held that if share application money is received from alleged bogus shareholders, the Department can reopen their assessments but cannot treat it as undisclosed income of the assessee company.

The Tribunal concluded that the AO and CIT(A) were not justified in making and confirming the additions under Section 68, as the assessee had provided sufficient evidence, including confirmations, affidavits, bank statements, and share certificates. The Tribunal also noted that the companies were showing the shares in their balance sheets, indicating genuine transactions.

3. Disallowance of Commission Payment:
For the assessment year 2005-06, the AO disallowed a commission payment of Rs. 9,375 related to the share application money. For the assessment year 2007-08, a disallowance of Rs. 7,500 was made for the commission paid on the share application money.

The CIT(A) upheld the disallowance of the commission payments, aligning with the findings on the non-genuineness of the share application money transactions.

The Tribunal, however, found that the disallowance of commission payments was not justified, given that the share application money transactions were found to be genuine. The Tribunal emphasized that the payments were made through account payee cheques, and the companies were registered and assessed to tax.

Conclusion:
The Tribunal allowed the appeals of the assessee for both assessment years, deleting the additions made under Section 68 and the disallowance of commission payments. The Tribunal directed the AO to allow consequential relief to the assessee.

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