The Kolkata Bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the addition of unexplained share application money under the Income Tax Act, 1961 as the creditworthiness of share subscriber companies was proven.
M/s. Wisley Real Estate Pvt. Ltd, the assessee is a Private Limited Company engaged in business and e-filed the return for A.Y. 2012-13 on 26.09.2012 declaring ‘NIL’ income. After the case was selected for scrutiny through CASS, valid notices were issued and served upon the assessee. During assessment proceedings, the Assessing Officer observed that the assessee had received share application money of Rs.1,76,57,500/- from a few share applicants. Notices under section 133(6) were issued to the alleged share applicants, but no information was received.
However, one of the Directors of the assessee company Shri Piyush Bajoria appeared before the Assessing Officer and his statements were recorded under section 131 of the Act he also brought two shareholders alongwith him to get the statements recorded. But Assessing Officer was not satisfied with the details as well as statements recorded and observed that the assessee failed to explain the nature and source of the alleged share application money of Rs.1,76,57,500/- completed the assessment making addition under section 68 of the Act for the alleged sum and assessed the income at Rs.1,76,57,500/-.
Before the CIT (Appeals) it was submitted that the main object of the assessee-company is Real estate developments in various fields. The promoters of the company are Shyam Group which has various business activities in various parts of the country and another group concern M/s. Century Group is a plywood manufacturer.
The assessee company purchased land during the financial year 2007-08 in South 24-Parganas District and the land were subsequently earmarked for an ‘Eco-Tourism Project’ and various land owners are also engaged in this project.
The CIT(Appeals) also appraised that during the year, share application money from three companies was received by way of issuing 7,07,400 equity shares of Rs.10/- each at a premium of Rs.15/- per share. Further complete details of each of the share applicants were furnished including share application form, income-tax return, Bank statement, PAN card, audited financial statements and the source of funds, confirmation of accounts, allotment advice etc. to explain the nature and source of the alleged sum and to prove that the equity shares were issued at almost book value and that too received from group concern. The CIT(Appeals) confirmed the action of the Assessing Officer.
Counsel for the assessee reiterated the submissions made before the CIT(Appeals) referred and gave reference to various details furnished in the Paper Book Index I containing 96 pages, Paper book Index No. II containing 582 pages, Paper Book No. III containing audited financial statements of M/s. Shyam Sel and Power Limited and copy of audited accounts of M/s. Shyam Metalics and Energy Limited and also the case laws paper book.
On the other hand, D.R. vehemently argued supporting the order of both the lower authorities and stated that the assessee did not make fair compliance to the notices issued and date of hearing given by the Assessing Officer and also in the statements recorded by the Director, no information was provided and in reply to most of the questions, he just stated “I cannot speak”, “I cannot recollect” etc.
It was evident that the assessee has successfully discharged its onus by filing complete details of the share subscriber companies including their bank statement, audited financial statements, Form no. 18 in support of registered office address, source and utilization of funds, copies of ITRs, and copies of all relevant company returns. Merely nonappearance of the Directors cannot be a basis for treating the share application money as unexplained or non-genuine.
The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, the onus shifts on AO to disprove the documents furnished by the assessee to draw an adverse view and in the absence of any investigation, much less gathering of evidence by AO, additions cannot be sustained merely based on inferences drawn by circumstance or made on surmises and conjectures.
The two-member bench found that all the share applicants have duly replied to the notices issued under Section 133(6) and the majority of them have appeared before the Assessing Officer for recording the statement under Section 131. It was evident that all share applicants are regularly assessed to tax and have also faced scrutiny proceedings and as per MCA Matter Data as of date, all alleged share applicants are active companies and the shares have been issued at the fair market value of the equity shares and that no excess share premium has been charged.
The Tribunal comprising Sanjay Garg, Judicial Member & Dr. Manish Borad, Accountant Member held that CIT (Appeals) erred in confirming the action of the Assessing Officer making the addition under section 68 of the Act. While allowing the appeal, the CESTAT deletes the addition made under section 68 of the Act.
A.K. Tulsyan appeared on behalf of the assessee and P.P. Barman, appeared on behalf of the Revenue.
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