2012 (7) TMI 481 - AT - Income Tax

Addition on account of share application money u/s 68 - CIT(A)deleted the additions made by AO - Held that - The assessee is a Private Limited Company, accordingly all the relevant provisions of Companies Act are applicable in respect of receiving share application money and issue of shares, whereas assessee did not file relevant resolution passed by the Board of Directors or otherwise related to share application money as required under the Companies Act and CIT(A), without appreciating the facts that the assessee has failed to prove the genuineness of the transaction, deleted the addition - against assessee Rent receivable - Accrual of rental income - AO stated that assessee has shown rent for two months whereas he ought to have shown rent for ten months as the assessee followed Mercantile System of accounting - CIT(A)deleted the additions made by AO - Held that - AO has calculated ten months rent merely on the ground that information under section 133(6) was not furnished by tenant and notices were retuned back and alleged that the assessee has failed to furnish correct address of tenant but ignored to note that the respective tenant is a Private Limited Company and the information regarding registered office would have been gathered from Registrar of Companies, if the AO was having doubt about the correct address, but no such exercise has been done by the AO - letter from Tenant confirmed the fact that the deposit of the property was given in the month of February, 2008, where he has admitted the mistake in TDS certificate and confirmed they have paid rent only for February & March, 2008 also confirmed the balance in their books of account which tallied with the books of account of the assessee - in favour of assessee.

Summary

Issues:
1. Addition of Rs.15,00,000 on account of share application money under section 68 of the Income Tax Act.
2. Addition of Rs.26,64,000 on account of rent receivable.

Issue 1: Addition of Rs.15,00,000 on account of share application money under section 68 of the Income Tax Act:

The appellant, deriving income from property rental, received share application money totaling Rs.15,00,000. The Assessing Officer questioned the creditworthiness and genuineness of this amount, particularly focusing on Rs.10,50,000 received in cash. The appellant failed to provide sufficient evidence, leading to an addition of Rs.10,50,000. However, the CIT(A) deleted this addition, citing that the appellant had submitted PAN details, bank statements, and tax returns of the shareholders. Notably, for the cash amount, evidence of agricultural land ownership by the shareholder was presented, indicating a legitimate source of investment. The CIT(A) emphasized that the Assessing Officer failed to conduct proper inquiries as required under section 68, and since the appellant met the conditions, the addition was unwarranted.

Issue 2: Addition of Rs.26,64,000 on account of rent receivable:

Regarding the rent received from M/s. Salasar International Pvt. Ltd., discrepancies arose in the assessment. The Assessing Officer calculated rent for ten months instead of two, based on incomplete information due to returned notices under section 133(6). However, the CIT(A) overturned this addition after considering various factors. The CIT(A) highlighted that the appellant had provided lease agreements, TDS certificates, and correspondence confirming the actual rental period. M/s. Salasar International Pvt. Ltd. clarified the rental period and confirmed the balance in their accounts, aligning with the appellant's records. The CIT(A) noted the lack of efforts by the Assessing Officer to verify the correct address or information from the Registrar of Companies. Ultimately, the CIT(A) found no fault in the appellant's reporting and deleted the addition of Rs.26,64,000.

In conclusion, the appellate tribunal partially allowed the Revenue's appeal for statistical purposes, emphasizing the importance of thorough examination and proper evidence presentation in tax assessments.