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TMI Blog2024 (8) TMI 541X X X X Extracts X X X X X X X X Extracts X X X X ..... pany. Similar view has been taken in the case of CIT Vs. Nav Bharat Duplex Ltd. [ 2013 (2) TMI 44 - ALLAHABAD HIGH COURT ] Also find that in the case of CIT Vs. Mishra Preservers Pvt. Ltd. [ 2013 (4) TMI 13 - ALLAHABAD HIGH COURT ] that if the shareholders are identified and they are not fictitious persons, the payments are made by cheques and were assessed to Income tax there cannot be any addition u/s 69 of the Act. On perusal of copy of ITR/Bank statement of all the parties who have applied for shares in the assessee company, it has been observed that the applicants have sufficient balance in their account to apply for shares and all the transactions have been done through banking channel . We observe that the Ld.CIT(A) on examining the information filed by the assessee in the form of confirmation, ITR, Bank statements, PAN details and also since there was no adverse material in the course of search to prove that the share application money is bogus and also assessee has proved the identity, genuineness and creditworthiness of the shareholders and deleted the addition made by the AO in respect of share application money from shareholders - Decided in favour of assessee. Ad hoc d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Prasad, Judicial Member And Shri Avdhesh Kumar Mishra, Accountant Member For the Assessee : Shri K. Sampath, Adv. And Shri V. Rajakumar, Adv. For the Revenue : Ms. Nidhi Singh, CIT DR ORDER PER C.N. PRASAD, J.M. These two appeals are filed by the Revenue as well as Assessee for the assessment years 2010-11 and 2009-10 respectively against different orders of the Ld. Commissioner of Income Tax (Appeals) dated 26.02.2016 and 02.01.2018. 2. We first take up the appeal of the Revenue for the AY 2010- 11, wherein the following grounds have been raised: - 1. That Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 2,19,91,020/- ignoring the facts that assessee had failed to furnish evidences to prove the identity, creditworthiness and genuineness of the transactions as has been held in the following cases: (i) CIT vs. Durga Prasad more. 82 ITR 540(SC) (ii) Commissioner of Income Tax v. Nova Promoters Fin lease Pvt. Ltd. (2012) 18 taxmann.com 217 (Delhi). 2. That the Ld. CIT(A) has erred in law and on facts in holding the share application money of Rs. 2,19,91,020/- as genuine though it was found by AO after making detailed enquiry that either cash was deposited in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion called for was not forthcoming the AO issued summons u/s 131 of the Act to the following shareholders which appeared on pages 3 to 34 of Annexure A-15 of the seized material: Page No. Name Amount (Rs.) AY 2010-11 1. Gaurav Singhal 3,00,000 2. Garima Singhal 3,00,000 3. Asha 10,20,020 4. Rajeev Kumar Agrawal 5,50,000 5. Ankur Agrawal 1,50,000 6. Hans Kumar Sons 12,01,000 7. Virendra Kumar 2,50,000 8. Hans Kumar 1,76,60,000 9. Shalini Singhal 8,00,000 10. Anil Kumar Verma 5,00,000 11. Poonam 5,00,000 12. Dayawati 18,50,000 13. Megha Jain 3,00,000 14. Sudha Rani 13,00,000 15. Usha Garg 5,10,000 TOTAL 2,19,91,020 4. In response to the summons issued u/s 131 of the Act the shareholders appeared before AO and the AO recorded statements from the above shareholders. The shareholders furnished information before AO regarding their share application money. On perusal of the bank statement of the above shareholders the AO found that before making advances, the amounts to the assessee company the shareholders either deposited in cash or transferred amounts from some other accounts, or either sourced from sale of investment, gold ornaments, realization of loans, etc. The AO on analyzing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s being exchanged on the credit and on the debit side of the bank accounts. The assessee also placed reliance on the following decisions in support of the above submissions: 1. CIT Vs. Lovely Exports Pvt. Ltd. (299 ITR 269) (Del.) SLP dismissed by Supreme Court 319 ITR (St) 5; 2. CIT Vs. Stellar Investments Ltd. (251 ITR 263) (SC); 3. CIT Vs. Victor Electrodes Ltd. (329 ITR 271) (Del.); 4. CIT Vs. Arunnanda Textiles Pvt. Ltd. (333 ITR 116) (Ker.); 5. CIT Vs. JD Security and finance Ltd. (350 ITR 220) (All.); 6. CIT Vs. Mishra Preservers Pvt. Ltd. (350 ITR 222) (All.); 7. CIT Vs. Value Capital Services Pvt. Ltd. (304 ITR 334) (Del.); 8. CIT Vs. AKJ Granites Pvt. Ltd. (301 ITR 298) (Raj.); 9. CIT Vs. G.P. International Ltd. (325 ITR 25) (P H). The Ld.CIT(A) considering the submissions of the assessee and the evidences placed on record deleted the addition of Rs. 2,19,91,020/- made by the AO. 8. Coming to the addition of Rs. 2,19,86,960/- the assessee furnished additional evidences before the ld.CIT(A) in terms of Rule 46A(1)(b) of the IT Rules. In the additional evidences the assessee furnished confirmations of the shareholders, bank statements, copies of demand draft, copies of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is opened to the AO to verify the same in the hands of the shareholder is concerned. 13. Placing reliance on the decision of the Hon ble Allahabad High Court in the case of CIT Vs. Mishra Preservers P. Ltd. (350 ITR 222) the Ld. Counsel submits that if the shareholders are identified and they are not fictitious persons, the payments are made by cheques and were assessed to Income tax there cannot be any addition u/s 69 of the Act. 14. Heard rival submissions, perused the orders of the authorities below. In so far as the addition of Rs. 2,19,91,020/- is concerned we observe from the assessment order that the AO issued summons u/s 131 of the Act to the shareholders and the shareholders appeared before the AO and their statements were also recorded, wherein the shareholders have deposed having advanced monies to the assessee company towards share application money. The shareholders have submitted the source of investments, either their own money, from out of sale of gold, jewellery, savings, loans taken from HUF, repayment of loans, etc. to prove their creditworthiness in lending the money to the assessee. However, we find that the AO records a finding that assessee has failed to prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se for not filing the details before assessing officer and additional evidences under rule 46A(1)(b) have accordingly been admitted (supra). 2. That in remand proceedings, Assessing Officer has appraised the facts and records and he submitted that The assessee company in the form of additional evidence has filed confirmation of share application money during the appeal proceeding. From the perusal of the copy of ITR/Bank Statement of all the parties who have applied for shares in the assessee company, it has been observed that the applicants have sufficient balance in their account to apply for shares and all the transactions have been done through banking channel . 3. That assessee filed the details in the form of confirmation, ITR, Bank statements, PAN details to prove the identity, capacity to invest and genuineness of the transaction which too have been accepted by the AO in remand proceedings. 4. That no documents were found/ seized during the search, on the basis of which proceedings under section 153C were initiated against the assessee, to suggest that share capital received by assessee company was bogus or that the assessee had paid cash in exchange of receiving the cheque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Assessing Officer, then Department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under section 68 of assessee-company. The case laws relied upon by the assessee and mentioned here in above squarely covers the case of assessee and Allahabad High Court, being the jurisdictional HC, have the binding force on this office. I am in respectful agreement with the Allahabad High Court and Supreme Court as stated above, and in the background of facts and law narrated above, hold that the assessing officer had wrongly made the addition and the identity, creditworthiness and transactions genuineness should have been investigated properly in the first instance itself and had onus would have been discharged properly then, it would not have resulted in the current proceedings: Share application money u/s 68 Rs. 2,19,91,020/- Share application money u/s 68 Rs. 2,19,86,960/- Hence I delete the addition of (Rs. 2,19,91,020/- + Rs. 2,19,86,960/-) Rs. 4,39,77,980/- 18. On perusal of the findings of the AO in the remand report, we observe that the AO had commented on the additional evidences, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleted observe that the AO did not point out any defect in the books of account, the books were not rejected and, therefore, there is no justification for making ad hoc disallowance. 23. We further observe that the assessee placed reliance on the decision of Delhi Bench of the Tribunal in the case of ACIT Vs. Ganpati Enterprises Ltd. (154 TTJ 1), wherein the coordinate bench held that when the assessee is following mercantile system of accounting and maintaining books of account the AO can reject the book results and assessed the income to his estimate or best judgment. The AO is required to point out the defects in the accounts of the assessee and seek his explanation qua the defects. It was held that if the assessee fails to explain the defects then the AO can compute the income according to his estimation. The coordinate bench held that the scheme of Act does not authorize the AO to make a disallowance according to his wishes rather it provides that he should point out the defects of the assessee. It was held that the AO nowhere indicated the total amount of expenditure claimed by the assessee and which specific voucher was not in accordance with law. It was held that AO has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,50,000/- from six parties totaling to Rs. 1,10,98,200/-. However, the AO was kind enough to consider total share capital and premium for examination of Rs. 1,31,42,820/- out of which the AO accepted Rs. 1,10,98,200/- and the balance share application money stood at Rs. 20,44,620/-. AO restricted herself to enquire the share capital to Rs. 1,31,42,820/-. However, the AO made addition of Rs. 22,02,620/- as an unexplained credit of the assessee. The Ld. Counsel submits that the assessee furnished share application forms duly signed by the investors and also the receipts for the amounts invested which proves that the assessee did receive the share application money from the shareholders and the transaction is genuine. 28. The Ld. Counsel further submits that the shareholders are all small time investors who had invested in shares of the assessee company and the amount involved is very meager as could be seen from the list of shareholders as extracted by the AO at pages 2 3 in the assessment order. The Ld. Counsel further submits that the AO had made addition of share capital and such a course of action is not available to the Ld. AO because the share application money cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfirmations and share applications in respect of these parties their identity and genuineness cannot be doubted. We further observed that in the case of the shareholders referred to above confirmations, share application Forms, PAN details were filed by the assessee and the AO could have examined the shareholders based on these evidences. The AO treated the shareholders as not genuine as the assessee did not produce the ITRs and bank statements without making further enquiries. 34. We further observe that most of the shareholders invested in the company are all small time investors, wherein they have invested amounts ranging from Rs. 480/- to Rs. 60,000/- and it cannot be said that the small time investors have no source to invest such a small amounts ranging from Rs. 480/- to Rs. 60,000/-. It is observed that the AO accepted share application money to the extent of Rs. 1,10,98,200/- out of Rs. 1,31,42,420/- and what was remained was Rs. 20,44,620/- and most of this amount came from all small time investors who have invested small amounts ranging from Rs. 480/- to Rs. 60,000/-. Therefore, the creditworthiness of the small time investors who have invested in the limited company of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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