Share Application Money received from Bogus Shareholders cannot be regarded as Undisclosed Income; maybe reopened as Individual Assessment: ITAT [Read Order]

ITAT- Share application money - bogus shareholders - undisclosed income - individual assessment - Taxscan

The Income Tax Appellate Tribunal (ITAT) Delhi bench has reiterated the precedence that Revenue cannot make addition under section 68 without making a thorough probe if the assessee has given adequate evidence that would prima facie discharge the burden. It was relying on the decision of the Hon’ble jurisdictional High Court in the case of CIT vs. Kamdhenu Steel and Alloys Ltd., &Ors. 361 ITR 220 (Del.)

The assessee M/s. M.L. Singhi& Associates (P) Ltd.’s original return was filed declaring income of Rs.13,46,17which was processed under section 143(1) of the Income Tax. Act, 1961. Subsequently, a search and seizure operation under section 132 was conducted in Brahmaputra Group of cases including the assessee, and various books of account and documents including those belonging to the assessee were found and seized. Notice under section 153A was issued requiring the assessee to file a return of income. In response, it was filed that the original return filed by it may be treated as a return having been filed in response to notice under section 153A declaring income of Rs.13,46,170. The assessee also produced the books of account and other documents from time to time before the Assessing Officer (AO) which after examination, noted that the assessee has failed to discharge its onus to prove the identity of the share applicants, their creditworthiness of the and genuineness of the transaction.

Therefore, the entire share application money of ₹ 6.70 crores was treated as unexplained in the hands of the assessee under section 68, and an addition was accordingly made. A similar issue was also faced by the assessee in a matter of another ₹ 9.60 crores that were treated similarly as unexplained money. The assessee was also required to produce the above shareholder companies through their Directors for verification of genuineness of the investment in shares by them in the assessee company. The Department then later verified the existence of these companies, their creditworthiness of the and genuineness of the transaction by making a survey under section 133A in which it was found that around 7 of them were not found to exist in their given address and was also not engaged in regular business.

Judicial Member Bhavnesh Saini and Account Member O.P. Kant while allowing the appeal by the assessee, relied on various precedences from the Delhi High Court and the Supreme Court of India and held, “On Ground Nos.1 and 2, the assessee challenged the addition of Rs.9.60 crores on account of share capital/ premium received from 19 Investor Companies. The Learned Representatives of both the parties submitted that the issue is identical as have been considered in A.Y. 2009-2010. The documentary evidences is also the same. They have, therefore, submitted that the Order in A.Y. 2009-2010 may be followed in this assessment year as well. In view of the above, we find that the issue is the same and based on identical facts, therefore, following the reasons for the decision for the A.Y. 2009-2010 (supra), we set aside the Orders of the authorities below and delete the entire addition of Rs.9.60 crores.”

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