No Addition u/s 68 of Income Tax Act when Share Application Money received from companies engaged in business of Share Trading proven with documents: ITAT

The Income Tax Appellate Tribunal (ITAT), Mumbai bench, held that an addition under Section 68 of the Income Tax Act, 1961, should not be made when share application money received from companies engaged in the business of share trading is proven with documents.

The assessee, Inter Publicity Pvt. Ltd., is engaged in the business of advertising in print, electronic media, hoarding, and creative artwork. It belongs to the Gauti Group.

The assessee, along with other group concerns and family members, was subjected to search operations under Section 132 of the Income Tax Act on 09-03-2015 by the Investigation wing of the Income Tax department.

According to a report by the department's investigation wing in Kolkata, numerous paper firms are granting different recipients accommodation entry in the form of share capital or premium. The department observed that the assessee's group had received share premiums or share capital from these paper companies.

The assessee was requested by the AO to provide various subscriber company details. The assessee provided some details, but the AO claims that these were insufficient. Therefore, the AO concluded the assessment by making additions under Section 68 of the Income Tax Act.

Aggrieved by the order, the assessee filed an appeal before the CIT(A), who confirmed the addition. Thus, the assessee filed a second appeal before the tribunal.

During the proceedings, Mani Jain, Counsel for the assessee, argued that the addition could not have been made under Section 68 of the Act, as the assessee has discharged the onus placed upon it. Also, the assessee furnished various documents. The identity of the lender, genuineness of transactions, and creditworthiness of the lender are established by the assessee.

Ashok Kumar Ambastha, Counsel for Revenue, argued that the assessee did not discharge the initial burden placed upon it regarding the share capital/share premium money received by it. Also, the share premium was made by the subscribers through their bank accounts via account payee cheques. Hence, these transactions cannot be treated as bogus.

Therefore, the AO mainly relied upon the report of the investigation wing to conclude that the assessee has availed only accommodation entries. Thus, the assessee has furnished the relevant details before the AO, and all those details were earlier filed with either the Income Tax department or with the Registrar of Companies, i.e., with government authorities.

With the furnishing of all these documents, in our view, the assessee has discharged the initial burden placed upon it under Section 68 of the Act by furnishing the above-mentioned documents.

The Tribunal, while considering the appeal, observed that the assessee has furnished all the details relating to the investors to discharge the burden placed upon it under Section 68 of the Act.

After reviewing the facts and records, the two-member bench of B.R. Baskaran (Accountant member) and Rahul Chaudhary (Judicial Member) relied upon the decision of the Bombay High Court in the case of CIT vs. Orchid Industries and observed that the addition under Section 68 of the Income Tax Act could not be made once the assessee had produced the documents to prove the cash credits.

Therefore, an addition under Section 68 of the Income Tax Act, 1961, should not be made when share application money received from companies engaged in the business of share trading is proven with documents.

To Read the full text of the Order CLICK HERE

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