Assessee’s Failure to Substantiate Details: ITAT deletes Share Application Money Addition on 4 Identifiable Investors, Retains Addition on 9 others [Read Order]
The Tribunal relied on the principle laid down by the Supreme Court in Lovely Exports Pvt. Ltd., recognizing that once an assessee provides primary details of investors, the onus shifts to the Revenue to investigate further.
![Assessee’s Failure to Substantiate Details: ITAT deletes Share Application Money Addition on 4 Identifiable Investors, Retains Addition on 9 others [Read Order]](https://images.taxscan.in/h-upload/2025/09/23/2090117-itat-ranchi-share-application-money-taxscan.webp "Assessee’s Failure to Substantiate Details: ITAT deletes Share Application Money Addition on 4 Identifiable Investors, Retains Addition on 9 others [Read Order]")
The Income Tax Appellate Tribunal (ITAT), Ranchi, held that additions made on account of unexplained share application money could not be sustained in respect of identified investors where sufficient details were furnished. The Tribunal further directed that the disallowance of large expenses be restricted to 2.5 percent instead of 10 percent, thereby partly allowing the appeal concerning income tax liability.
M/s Pato Builders Pvt. Ltd., Jamshedpur, had filed an appeal challenging the order of the Commissioner of Income Tax (Appeals), Jamshedpur [CIT(A)], for the Assessment Year (AY) 2012-13. The company had received share application money amounting to ₹1,00,56,000 from fourteen different persons, out of which it could furnish details only for four investors namely, its sister concern M/s Pato Infrastructure Ltd., the company’s Director Shri Mukesh Kumar, his mother Smt. Champa Devi, and his wife Smt. Sunita Devi.
The remaining nine investors could not be substantiated as the company admitted its inability to provide any further information due to the ill health of its Director and the ongoing process of winding up the company.
Apart from this, disallowances had also been made in respect of unpaid Value Added Tax and service tax liabilities, which the assessee later chose to withdraw, and on large other expenses where the Assessing Officer (AO) had applied a flat 10% disallowance on total expenditure of ₹16,10,29,331 crores, including ₹12.95 crores of contract expenses supported by bills and tax deduction at source certificates.
The assessee represented by Devesh Poddar argued that out of the fourteen shareholders, details of four investors including a sister concern, the Director, his mother, and his wife had been submitted. It was contended that once basic details were furnished, the AO was duty-bound, in light of the Supreme Court ruling in CIT v. Lovely Exports Pvt. Ltd. (2008), to make further inquiries in the cases of such shareholders.
Regarding expenses, he submitted that disallowance of the estimated 10 percent disallowance on total expenses of ₹16,10,29,331 crores, highlighting that contract expenses amounting to about ₹12.95 crores were fully supported by bills and tax deduction at source certificates.
The Revenue represented by Rinku Singh, countered that even the information regarding the four shareholders was incomplete, and that the assessee had admitted its inability to furnish details of the other nine investors. Regarding the disallowance of expenses, it was argued that given the lapse of time and lack of supporting documentation, sustaining the AO action would be more feasible.
The Bench comprising Judicial Member, George Mathan and Accountant Member, Ratnesh Nandan Sahay, held that the share application money received from four identifiable investors could not be added back to the assessee’s income, but sustained the addition for the nine unexplained investors.
On the issue of expenses, the Tribunal found merit in the assessee’s contention and reduced the disallowance from 10 percent to 2.5 percent of the total claimed expenses.
The grounds relating to unpaid Value Added Tax and service tax liabilities were withdrawn by the assessee and dismissed accordingly.
The appeal was thus partly allowed.
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