2017 (3) TMI 74 - AT - Income Tax

Reopening of assessment - addition made under section 68 - Held that - In respect of the share application money received from Bhagwan Krishan Investment & Trading Co Pvt Ltd, assessee had furnished details such as copy of share application form, certified copy of memorandum & articles of association, certified copy of board resolution, certified copy of the auditors report and balance sheet as on 31st March, 2005 and so on, in support of the genuineness of the transaction of share application money. AO made addition merely on the basis of statement of Pradeep Kumar. which are not correct for the reason that the assessee has received share application money by cheque and no cash was given to Bhagwan Krishan Investment & Trading Co Pvt Ltd. The fact that no amount of cash was ever given to the company which is proved by the fact that the bank account of the investor-company Punjab National Bank, Azadpur Branch, (which was also furnished to the Assessing Officer - shows that there is no such cash deposit in the bank account of the said company and that the amount of share application money is received out of sale consideration of old investments. Even after asking by the assessee the Assessing Officer has not issued any summons under section 131 or notice under section 133(6) to the Directors of Bhagwan Krishan Investment & Trading Co Pvt Ltd. and has concluded only on the basis of the statement of Mr Pradeep Kumar. We also found that Pradeep Kumar on whose statement AO has relied was not a director of M/s Bhagwan Krishan Investment from whom assessee company received share application money. AO in the assessment order has merely relied upon the statement of a third party to hold that cash was given in order to issue cheque DD of the equivalent amount for subscribing to the share application of the assessee company without proving that cash was actually given to the investor-Company by either proving from their bank statement or otherwise, even though the assessee has proved from the bank statement of M/s.Bhagwan Krishan Investment and Trading Co Pvt Ltd that there was no such cash deposit made by the investor-company and the cheque was issued from the balance available in their bank account. AO has also not allowed cross examination of Mr Pradeep Kumar, inspite of specific request by assessee and hence, his statement on oath has no evidentiary value and hence required to be ignored.We found that Assessee Company has received application for allotment of preference shares, which have been allotted by the assessee company and identity of share applicant has also been proved by the assessee and hence, the share application money could not be added as income in the hands of the assessee company. Thus no merit in the action of AO making addition - Decided in favour of assessee

Summary

Issues Involved:
Validity of reopening under Section 147 and addition made under Section 68 of IT Act regarding share application money received.

Detailed Analysis:

1. Validity of Reopening under Section 147:
The appeal was filed against the order of CIT(A) confirming the action of the Assessing Officer in issuing notice under Section 148 of the IT Act. The appellant contended that the notice under Section 148 was bad in law and needed to be quashed. The original assessment was framed under Section 143(3), and the notice for reopening was given much beyond the four-year period from the end of the relevant assessment year. The appellant argued that there was no failure on their part to furnish the return or disclose all material facts necessary for assessment.

2. Addition under Section 68 - Share Application Money:
The Assessing Officer made an addition of ?15,00,000 under Section 68 for the amount received on account of allotment of share capital. The appellant contended that all details of the share applicants were furnished, and the money did not belong to them. They argued that the addition should be deleted. The appellant provided evidence of the genuineness of the transaction, including bank statements and documents supporting the share application money received. The Assessing Officer relied on a statement without allowing cross-examination or verifying the concerned persons.

3. Charging of Interest under Sections 234B and 220(2):
The CIT(A) confirmed the action of the Assessing Officer in charging interest under Sections 234B and 220(2) of the Act. The appellant contended that the charging of interest was not in accordance with law and that they were not given an opportunity before the interest was charged. They argued that the Assessing Officer did not follow the principles of natural justice.

4. Judicial Pronouncements and Legal Precedents:
The appellant relied on various judicial pronouncements to support their contentions, emphasizing the importance of cross-examination and the necessity of proving the source of funds in cases of share capital additions. The case law cited highlighted the requirement to establish the identity of shareholders and the genuineness of transactions when making additions related to share capital.

5. Decision and Conclusion:
After considering the contentions, evidence, and legal precedents, the Tribunal found that the reopening of the assessment was invalid and that the addition of ?15,00,000 as share application money was not justified. The Tribunal emphasized the importance of proving the source of funds and the genuineness of transactions before making such additions. The appeal of the assessee was allowed, and the addition was deleted.

In conclusion, the Tribunal's judgment focused on the procedural irregularities in the assessment process, the lack of evidence supporting the addition of share application money, and the importance of following legal principles and precedents in tax assessments.