The Chennai Bench of the Income Tax Appellate Tribunal ( ITAT ) deleted an addition of Rs. 5 crore under Section 68 of the Income Tax Act, 1961, ruling that when share application money is received from identifiable investors, the onus shifts to the Income Tax Department to disprove the transaction.
P.V. Subramani, the assessee, was engaged in the business of letting cabs on hire and was also the Managing Director of Cargrowings (Madras) Pvt. Ltd. (CMPL). During the assessment proceedings of CMPL, the Assessing Officer (AO) observed that CMPL had received Rs. 5 crore as share application money from the assessee which led to a reopening of the assessee’s case under Section 147 of the Income Tax Act.
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The AO found that the assessee had leased out his property (1 Acre and 53 Cents) at Chembarambakkam to Safe Carwings Pvt. Ltd. (SCPL) through a lease agreement executed on October 1, 2009. The lease agreement stated that SCPL would pay a refundable lease deposit of Rs. 5 crore, issuing a cheque in March 2009. The funds were then recorded as Share Application Money in the Balance Sheet as of March 31, 2009, with the rental deposit shown as a liability.
The Assessing Officer (AO) challenged the transaction, arguing that the property was valued at only Rs. 1.65 crore, making a Rs. 5 crore lease deposit unreasonable. The AO ruled that the rental deposit was a fictitious transaction, and since the assessee failed to prove the genuineness of the deposit, the amount was added as unexplained cash credit under Section 68.
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On appeal, the assessee submitted supporting documents, including the lease agreement, bank statements, and other financial records. A remand report was called for from the AO, who argued that the funds were mobilized and settled only in September 2009, meaning they should have been recorded in the financial statements of AY 2010-11 instead of AY 2009-10. The CIT(A) upheld the AO’s decision, stating that the assessee failed to justify the transaction in the relevant assessment year.
Before the Income Tax Appellate Tribunal (ITAT), Chennai, the assessee argued that the lease deposit was genuine and supported by proper documentation. The identity of SCPL was well established. The transaction was recorded as per standard accounting practices and the property’s market value was much higher than the book value, justifying the lease deposit.
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The Revenue argued that the creditworthiness of SCPL was not proven and the lease deposit was a mere accommodation entry.
The two-member bench, comprising Manoj Kumar Aggarwal (Accountant Member) and Manu Kumar Giri (Judicial Member), relied on the Supreme Court judgment in Lovely Exports Ltd. (216 CTR 195 SC), which held that if share application money is received from identifiable investors, the tax department must disprove the transaction, not the assessee.
The tribunal observed that the assessee provided PAN details and supporting documentation, shifting the burden of proof to the tax department, which failed to disprove the transaction. The tribunal ruled that the tax department did not establish that the Rs. 5 crore deposit was unaccounted money. So, the addition under Section 68 was deleted. The tribunal allowed the appeal in favor of the assessee.
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