2018 (11) TMI 945 - AT - Income Tax

Addition u/s 68 - undisclosed share application money receipts - share applicants could not prove their credit worthiness and failed to produce any documentary evidence to prove their identity, profession, income certificate to establish their claims having paid the share application money - scrutiny under CASS - Held that - In this case, the assessee company is not operational and the company was closed. Though the assessee produced 5 persons before the AO and the AO has given an observation that none of them have credit worthiness and did not produce any document with regard to identity, profession, income certificate etc.., but the AO has not furnished the names of the persons and discussed in detail share applicant wise, the contents of the statement recorded from them and as to why the applicants lacking the source. In the absence of complete discussion, much reliance cannot be placed on the observations of the AO with regard to the credit worthiness in the case of 5 persons who were produced before the AO. AO even did not issue notice u/s 133(6) calling for the information from the share applicants. In the absence of any enquiries made, contents of confirmations cannot be held adversely against the assessee. It is a settled principle that suspicion whatever strong, the same cannot be held against the assessee unless it is proved. Having filed the confirmations, explained the sources, the assessee has discharged its burden and the onus is shifted to the AO and the AO did not shift the burden again to the assessee. Therefore, having failed to prove that the share application money received by the assessee was bogus, we are unable to sustain the order of the Ld.CIT(A) - Decided in favour of assessee.

Summary

Issues:
Assessment of share application money under section 68 of the Income Tax Act, 1961 for the assessment year 2013-14.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the assessment of share application money. The assessee declared a loss for the assessment year 2013-14 and accepted share application money during that period. The Assessing Officer (AO) found discrepancies in the verification of the share applicants, leading to the addition of the amount under section 68 of the Act. The CIT(A) upheld the AO's decision, stating that the transactions were not genuine due to lack of proper documentation and verification of the investors.

The appellant argued before the Tribunal that the company was not operational, the factory was auctioned, and important documents were destroyed in a cyclone. The appellant produced 5 investors who confirmed their investment, along with evidence of payment through bank cheques. The appellant contended that the genuineness of the transactions was proven, citing the source of income of the investors and technical reasons for non-allotment of shares. The Tribunal considered the evidence provided, including confirmation letters and details of the investors, and found that the burden of proof had shifted to the AO. The Tribunal concluded that the AO failed to conduct proper inquiries and did not shift the burden back to the assessee, leading to the allowance of the appeal.

In its decision, the Tribunal emphasized the importance of proper verification and documentation in cases involving share application money. It noted that suspicion alone cannot be held against the assessee without concrete proof. The Tribunal found that the appellant had discharged its burden by providing necessary details and that the AO's lack of thorough investigation led to the reversal of the CIT(A)'s decision. Consequently, the Tribunal allowed the appeal of the assessee, setting aside the CIT(A)'s order and ruling in favor of the appellant.