2013 (11) TMI 964 - AT - Income Tax

Addition u/s 68 Share application money received - Held that - Following CIT vs. Lovely Export 2006 (11) TMI 121 - DELHI HIGH COURT - If the identity of the shareholders have been established, even if there is a case of bogus share capital, it cannot be added in the hands of the company unless any adverse evidence is not on record. In the instant case the appellant has provided evidence in the form of PAN, ROC details, copy of IT return filed and copy of confirmation and affidavit to establish the genuineness of the transaction Following Fair Finvest Ltd 2012 (12) TMI 170 - DELHI HIGH COURT - Where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and share holders register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon - No addition can be made in the hands of the company under sec.68. In this case - Except asking the assessee to produce the directors 8 days prior to framing the assessment no inquiry what-so-ever has been initiated by assessing officer - Neither any summons u/s 131, notice u/s 133(6) or any cross inquiry of the investors whose entire income-tax record was furnished by the assessee was ever conducted by the assessing officer - There is no reference to any issuance of summons u/s 131 or notice u/s 133(6). In the absence of any inquiry or any adverse report based thereof, the plethora evidence furnished by the assessee cannot be brushed aside in a summary manner Decided against Revenue.

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act.
2. Assessment reopening under Section 148.
3. Burden of proof regarding share application money.
4. Adequacy of evidence provided by the assessee.
5. Role of the Assessing Officer (AO) in conducting inquiries.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68 of the Income Tax Act:
The main issue in the Revenue's appeal was the deletion of the addition of Rs. 40,00,000/- made under Section 68 of the Income Tax Act concerning alleged share application money. The CIT(A) deleted the addition by observing that the share capital subscription was received through cheques from duly registered corporate entities with PAN numbers and regular income tax filings. The CIT(A) noted that the AO did not conduct further inquiries or issue notices under Section 133(6) or Section 131 to verify the investor companies' details.

2. Assessment Reopening under Section 148:
The assessee's original assessment was framed under Section 115JB of the Income Tax Act. The assessment was later reopened under Section 148, alleging that the assessee had taken accommodation entries for share application money from three corporate entities. The AO added Rs. 40,00,000/- to the income of the assessee under Section 68, citing failure to furnish substantive evidence regarding the investors' creditworthiness.

3. Burden of Proof Regarding Share Application Money:
The assessee provided various documents to discharge its burden under Section 68, including share application forms, board resolutions, incorporation certificates, PAN details, bank statements, and confirmations. The CIT(A) held that the assessee had discharged the initial onus of proving the transactions' bona fides. The AO's failure to conduct further inquiries or provide adverse evidence against the assessee's submissions was highlighted.

4. Adequacy of Evidence Provided by the Assessee:
The CIT(A) found that the AO disregarded the evidence submitted by the assessee, emphasizing that the identity and creditworthiness were not proved. However, the CIT(A) noted that the AO did not bring any material to show that the confirmations filed by the investor companies were not genuine. The CIT(A) cited various judicial pronouncements, including the Supreme Court's decision in CIT vs. Lovely Export and other High Court rulings, to support the view that once the identity of the shareholders is established, the share capital cannot be treated as undisclosed income of the company.

5. Role of the Assessing Officer (AO) in Conducting Inquiries:
The Tribunal observed that the AO did not initiate any inquiry or verification of the details provided by the assessee. The AO's general observations about the modus operandi of entry operators were not specific to the assessee. The Tribunal noted that the AO did not issue any summons under Section 131 or notices under Section 133(6) to verify the investors' details. The Tribunal upheld the CIT(A)'s order, emphasizing that the AO's failure to conduct necessary inquiries and the absence of any adverse report rendered the addition under Section 68 unjustified.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the addition of Rs. 40,00,000/- under Section 68. The Tribunal highlighted the AO's lack of inquiry and the adequacy of the evidence provided by the assessee to establish the genuineness of the share application money. The Tribunal relied on various judicial precedents to support its decision, emphasizing the need for the AO to conduct thorough inquiries before making additions under Section 68.

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