ITAT directs AO to verify Fabricated Financial Statements with respect to Share Application Money in P/L Account [Read Order]

The Chennai bench Income Tax Appellate Tribunal ( ITAT ) recently directed the Assessing Officer ( AO )to verify the fabricated financial statements with respect to share application money in Profit and Loss Account.

Kali Infra Pvt. Ltd., engaged in infrastructure development, found its return of income under scrutiny. The AO discovered a claim of receiving Rs. 15.09 Crs as 'share application money' pending allotment. Subsequently, the AO requested evidence from the assessee regarding the identity of the subscriber, transaction genuineness, and creditworthiness of involved parties.

Despite requests, the assessee provided no cooperation, leading to a show cause notice from the AO questioning the treatment of the share application money under Section 68 of the Income Tax Act, 1961.

Consequently, after reviewing the provided explanation, the AO concluded the failure of the assessee to establish credit for 'share application money,' resulting in additions under Section 68 of the Act amounting to Rs. 15.09 Crs. Dissatisfied, the assessee appealed to the CIT(A), who subsequently annulled the AO's addition. Subsequently, the revenue filed an appeal before the tribunal.

During proceedings, the counsel for the assessee, Zarna Chandwani, argued against the allegations of rerouting unaccounted income, highlighting the lack of findings concerning the receipt of share application money in cash or through proper banking channels in the AO's order.

Conversely, Department representative Nilay Baran Som contended that though the financial statements were purportedly fabricated, the claim lacked supporting evidence.

The tribunal's observation revealed no actual receipt of money as 'share application money' pending allotment. Instead, the assessee had falsified financial statements by passing notional entries, claiming value for land and developments belonging to the company director, under the guise of entering into a Joint Development Agreement.

Furthermore, it was noted that while the AO had made additions under Section 68, the assessment order failed to elucidate the mode of receipt of the said share application money, whether through cash or proper banking channels.

After analyzing the submission of both parties the bench comprising Mahavir Singh,( Vice President ) and Manjunatha.G, ( Accountant Member ) directed AO to verify Fabricated Financial Statements with respect to Share Application Money in the   profit  and loss Account of assessee.

To Read the full text of the Order CLICK HERE

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