2018 (10) TMI 129 - AT - Income Tax

Addition on account of share application money on protective basis u/s 68 - Identity of the investor credit worthiness and genuineness - Held that - Evidences placed by the assessee establish that the sufficient sources are available to Shri K. Srinivasa Rao to make the investment of ₹ 98,00,000/-. CIT(A) the assessee has given complete cash trail and cash flow to explain the sources and the department did not bring any evidence to controvert the finding given by the CIT(A). In the instant case, Identity of the investor credit worthiness and genuineness is established and we do not find any reason to interfere with the order of the CIT(A) and the same is upheld. In the assessee s case, the addition was made on protective basis in the hands of the assessee company and completed the assessment of Shri K.Srinivasa Rao on substantive basis. Once the assessment is made on substantive basis on the correct person, the protective assessment has no legs to stand and required to be deleted. On this reason also we delete the addition made by the AO. Accordingly the appeal of the revenue on this ground is dismissed. Addition u/s 69 - Held that - The fact that the assessee had remitted the funds of ₹ 92.54 lakhs from banking channels and raised the loans with Dhanalakshmi Bank for an amount of ₹ 1,19,44,000/- was not disputed by the AO. As observed by the Ld.CIT(A), there was cash balance of ₹ 1,52,78,047/- as per the financial statement submitted by Shri K.Srinivasa Rao as at the end of 31.03.2010. From the above, it is established that Shri K.Srinivasa Rao is having sufficient source to make the investment of share application money in the company. Therefore, there is no case for suspecting the genuineness of the transaction having established the identity, credit worthiness and source of the capital. Hence, there is no case of making the addition u/s 69, accordingly, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue.

Issues Involved:

1. Addition of ?98,00,000/- related to share application money on a protective basis under Section 68 of the Income Tax Act, 1961.
2. Addition of ?50,00,000/- towards rent deposit received from NRI educational society under Section 68 of the Income Tax Act, 1961.
3. Substantive addition of ?98,00,000/- under Section 69 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition of ?98,00,000/- related to share application money on a protective basis under Section 68 of the Income Tax Act, 1961:

The Assessing Officer (AO) found that the assessee company had accepted share application money of ?98,00,000/-. The assessee explained that the investment was made by one of the Directors, a non-resident Indian (NRI) self-employed in the USA, who provided a confirmation letter and cash flow statement showing funds remitted from the USA to his bank accounts in India. The AO, however, concluded that the Director had no resources to make the investment at the relevant time and added ?98,00,000/- to the income of the assessee company on a protective basis under Section 68, while making a substantive addition in the hands of the Director under Section 69.

On appeal, the CIT(A) observed that the Director had remitted funds through banking channels and provided a detailed cash flow statement. The CIT(A) concluded that the identity, creditworthiness, and genuineness of the transaction were established and deleted the addition. The Tribunal upheld the CIT(A)'s decision, noting that the Director had sufficient sources to make the investment and that the protective assessment in the company's hands should be deleted since the substantive assessment was correctly made in the Director's hands.

2. Addition of ?50,00,000/- towards rent deposit received from NRI educational society under Section 68 of the Income Tax Act, 1961:

The AO found that the assessee company received a rent deposit of ?50,00,000/- from an NRI educational society through the Director's personal account, which was paid in cash to the company. The AO suspected the genuineness of the transaction due to the lack of cash balance in the Director's bank account as of the payment date and added ?50,00,000/- under Section 68.

On appeal, the CIT(A) observed that the Director had a cash balance of ?1,52,78,047/- as of 31.03.2010, sufficient to make the payment. The CIT(A) accepted the transaction as genuine and deleted the addition. The Tribunal upheld the CIT(A)'s decision, confirming that the source of the deposit, identity, and genuineness of the credit were explained, and dismissed the revenue's appeal.

3. Substantive addition of ?98,00,000/- under Section 69 of the Income Tax Act, 1961:

The AO made a substantive addition of ?98,00,000/- in the hands of the Director under Section 69, suspecting the genuineness of the share application money investment. The Director explained the sources of funds, including foreign remittances and loans from Dhanalakshmi Bank, which were rotated through various business concerns and ultimately provided by his father for investment.

On appeal, the CIT(A) deleted the addition, holding that the source of funds was explained. The Tribunal upheld the CIT(A)'s decision, noting that the Director had remitted funds through banking channels and raised loans, establishing sufficient sources for the investment. The Tribunal dismissed the revenue's appeal, confirming the identity, creditworthiness, and genuineness of the transaction.

Conclusion:

The Tribunal dismissed the revenue's appeals, upholding the CIT(A)'s decisions to delete the additions made by the AO under Sections 68 and 69 of the Income Tax Act, 1961, based on the established identity, creditworthiness, and genuineness of the transactions.

← Previous Next →