Lalwani Estates & Realtors Pvt Ltd Vs ITO (ITAT Mumbai)
Conclusion: Assessee had issued share application money and subsequently allotted shares which showed that the transactions were genuine and there was no material brought on record by tax authorities that the assessee had benefited from round-tripping, therefore, ITAT had deleted the addition made u/s 68.
Held: Assessee filed its return of income declaring a total income at ₹10,19,760/- and subsequently assessee revised its return of income on 30.09.2008 declaring total income at ₹ 2,020/-. Subsequently, the case was reopened u/s 147 based on the information received from the office of DGIT (Investigation), for accommodation entry received by assessee during the year under consideration from various concerns operated by a group. Notices u/s 148 were issued and served on assessee and procedures specified for re-assessment proceedings were duly completed by AO. The main reasons recorded for the reopening of the assessment were three companies controlled by the same person and indulged in providing accommodation entries. These three companies have paid share application money to assessee ₹.10,00,000/- each during the current assessment year. Subsequently, further notices u/s 142(1) were issued to assessee. During assessment proceedings, AO observed from the Balance Sheet of assessee that assessee had issued 995000 shares of ₹.10/- each, and out of the above shares 20000 shares were allotted to signatories of the company. After analyzing the financials of the companies, AO observed that all three companies no doubt have declared turnover and also have huge creditors outstanding, booked marginal expenses and returned income was comparatively less. After because none of the parties appeared before him, he concluded that assessee as well as the alleged investors failed to prove the creditworthiness and genuineness of the transaction and accordingly, treated as unexplained cash credit u/s 68. Hence, AO made an addition u/s 68. It was held that assessee had only issued share application money to the extent of the face value of shares and there was no involvement of any receipt of share premium in this case for which assessee had submitted all the relevant documentation substantiating the identity. The Bench observed that from the Balance Sheet, it was noticed that the available funds in the business suggested that investors could make investments in shares issued by assessee company. The investors didn’t need to have the earning capacity to substantiate the investments in the other companies. It was enough that they have enough funds at their disposal to make the investments. In this case, the investments were made only to the extent of face value. Merely because the investors were not brought before AO it did not negate the expenses of the investors. Assessee had submitted the confirmations from all these parties. The case was reopened based on alleged accommodation entries provided to various entities while observing that these three entities were connected to the same person. Since none responded or partly responded to the notices issued by AO, AO concluded that all these parties were bogus without further verification of the same he proceeded to make the addition. The Bench highlighted that in the Balance Sheet of assessee, it was still showing as share capital. It was not brought on record how it was merely an accommodation entry when the actual funds were received by assessee through the bank. Therefore, the whole transaction of the issue of share capital was genuine.
