Genuineness of Share Application Money can’t be suspected without Proper Inquiry: ITAT [Read Order]

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The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench has held that the genuineness of the share application money cannot be suspected without a proper inquiry by the Assessing Officer.

In the instant case, the Assessing Officer invoked the provisions of section 68 of the Income Tax Act, 1961 to treat the share application money received by the assessee as unexplained credit and asked the assessee to submit identity of the creditors, the capacity of creditors to advance money, and show the genuineness of the transaction. After receiving the said information, the Assessing Officer confirmed the addition by holding that the assessee provided only partial information.

The ITAT, while considering the second appeal filed by the assessee noted that assessee has disclosed PAN of the relevant concern. The Tribunal further noted that the bank statement submitted by the assessee is for a limited period showing transaction received by it. The document was submitted by the assessee before ITAT in order to demonstrate that it has received share application money through account payee cheques. PAN details were submitted in order to demonstrate that this assessee is assessable to tax, and it proves its identity.

“That concern responded to the notice received under section 133(6) of the Act. The AO thereafter did not conduct any inquiry. We deem it appropriate to mention that investigation wing of the department is able to unearth details of various accommodation entry providers mainly Kolkatta based companies, but the AO nowhere observed that these concerns were ever engaged in providing accommodation entries, and this fact came to notice of the Department through its investigation wing. Thus, if he has any doubt, he should have called for further information from the share applicants. He should have asked the assessee to produce directors of share applicant companies or Shri Anil Kumar who is a brother of one of the directors. The v could have issued summons under section 131 of the Income Tax Act. But instead of conducting any inquiry, he just draws certain inference for disbelieving the documents produced by the assessee or received by him in response to his notice under section 133(6) of the Act. It is also pertinent to observe that quantum of income mentioned in the return of income cannot be criteria to judge credit-worthiness of share applicants,” the Tribunal observed.

While concluding the case in favor of the assessee, the Tribunal held that “Only doubt raised by the AO was that they have declared very meager income in their returns of income. Therefore, he doubted their credit-worthiness. This conclusion did not meet the approval of the ld.CIT(A), ITAT or the Hon’ble High Court. Therefore, in view of the above discussion, we are of the view that since the AO failed to conduct inquiry even on the second remand report called for by the ld.CIT(A), his conclusion are without any supporting evidence. In view of the above discussion, we allow this ground of appeal, and delete the impugned addition.”

To Read the full text of the Order CLICK HERE