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2015 (4) TMI 755 - AT - Income TaxUnexplained share application money - Ao makes addition on general basis, no detailed enquiry undertaken by him - Profits from share trading - Business income or Short term capital gain - Held that - No inquiries were conducted by AO to find out the genuineness of the transactions and creditworthiness of the companies who had applied for the share application money in the assessee company. We find considerable merit in the argument of ld. counsel for the assessee that merely because the directors were not produced the addition could not be made in view of the decision of Hon ble Delhi High Court in the case of Victor Electrodes Ltd. 2010 (5) TMI 62 - DELHI HIGH COURT and also in the case of Nova Promoters 2012 (2) TMI 194 - DELHI HIGH COURT Hon ble Delhi High Court had clearly distinguished between the cases where AO had carried out detailed inquiry and then arrived at a finding regarding accommodation entries and those cases where AO did not carry out any inquiry and merely made addition on general basis. The inquiry for arriving at a proper conclusion is a sine qua non and that cannot be dispensed with by making general observations. We find that the decision in the case of Goel Sons Golden Estate P. Ltd. 2013 (4) TMI 571 - DELHI HIGH COURT is squarely applicable to the facts of the present case. Also refereed case - Fair Invest LTd. 2012 (12) TMI 170 - DELHI HIGH COURT . Profits from share trading - The AO has categorically observed that assessee had not given any reply. However, at page 23 of the PB, the assessee refers to the reply filed by it before the AO. We find that before ld. CIT(A) the assessee had advanced detailed submissions, but there is no reference to the reply filed before AO dated 15-7-2008. Ld. CIT(A) has also not recorded any finding on this aspect. Therefore, we restore this issue to the file of AO to decide the issue de novo after considering the assessee s submissions. Ground is allowed for statistical purposes. - Decided partly in favour of revenue.
Issues Involved:
1. Deletion of addition made on account of unexplained share application money. 2. Treatment of short-term profit on shares as business income or short-term capital gain. Issue-wise Detailed Analysis: 1. Deletion of Addition Made on Account of Unexplained Share Application Money: The department's appeal challenges the deletion of an addition of Rs. 80,00,000/- made by the Assessing Officer (AO) on account of unexplained share application money. The AO observed that the assessee introduced share application money amounting to Rs. 2,40,00,000/- from 26 concerns, including a share premium of Rs. 2,16,00,000/-. The AO required the assessee to produce the directors of certain companies, which the assessee failed to do, leading the AO to conclude that the genuineness of the transactions was not proved. The AO relied on the Supreme Court decisions in Sumati Dayal Vs. CIT and CIT Vs. T. Mohan Kala to support the addition. The assessee contended before the CIT(A) that it had provided all necessary details, including PAN, bank statements, and affidavits from the directors of the companies. The CIT(A) observed that the AO did not prove that the documents were forged or that the share applicants were not creditworthy. The CIT(A) deleted the addition, noting that the AO did not conduct any inquiry to substantiate his claims. The Tribunal upheld the CIT(A)'s decision, stating that the AO relied on general information and did not conduct specific inquiries into the genuineness of the transactions. The Tribunal referenced the Delhi High Court decisions in CIT Vs. Victor Electrodes Ltd. and CIT Vs. Fair Invest Ltd., emphasizing that merely failing to produce directors cannot justify an addition if the AO did not conduct necessary inquiries. 2. Treatment of Short-Term Profit on Shares as Business Income or Short-Term Capital Gain: The second issue concerns whether the short-term profit on shares amounting to Rs. 30,05,599/- should be treated as business income or short-term capital gain. The AO treated the profit as business income, noting that the assessee's primary activity was trading in shares. The AO claimed that the assessee did not file any reply to justify the treatment of the profit as short-term capital gain. The CIT(A) disagreed with the AO, highlighting several factors: - The assessee maintained a distinct portfolio of shares as investments. - The assessee had consistently treated similar transactions as capital gains in previous years. - The transactions were delivery-based, and the assessee received dividends on some shares. - The assessee did not claim Securities Transaction Tax (STT) as a business expenditure. - A board resolution regarding investment in IPOs was provided. The Tribunal noted that the assessee had indeed filed a reply before the AO, which was not considered. Therefore, the Tribunal restored the issue to the AO for a fresh decision, taking into account the assessee's submissions. Conclusion: The Tribunal dismissed the department's appeal regarding the addition of Rs. 80,00,000/- for unexplained share application money, upholding the CIT(A)'s decision. However, it restored the issue of treating short-term profit on shares to the AO for a fresh decision. The appeal was partly allowed for statistical purposes.
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