Shakti Hardware Collection Pvt. Ltd Vs DCIT (ITAT Mumbai)
We find that there are ample evidences to support the case of the assessee that the share application money received by assessee is genuine but this information was never examined by the AO or CIT(A) despite the fact that the same was available with the authorities below before finalization or adjudication of the issue. We find that the AO proceeded to discredit the investors of the assessee, which is completely erroneous. The AO was looking for proof beyond doubt and proceeded on an element of suspicion that the amounts of investments are really those of the assessee, which have been ploughed back by the assessee. But the settle principle of law is that any amount of suspicion however, it strong might be, is no substitute for proof. Suspicion is not sufficient enough to lead to the conclusion that the investments received by the assessee company are all manipulated receipts and on that basis he can record a finding that the explanation of the assessee is not satisfactory. According to us, so long as the proof and identity of the investor and the payment received from him is through a doubtless channel like that of a banking channel, the receipt in the hands of the assessee towards share capital or share premium does not change its colour. The money so invested in the assessee company would still be the money available and belonging to the investors. The consistent principle followed is that the investors sources and creditworthiness cannot be explained by the assessee. If the Department has a doubt about the genuineness of the investor’s capacity, it is open to it to proceed against those investors. Without taking such a course of action, the AO proceeded on conjectures and surmises that the assessee has, in fact, ploughed back the money. The very approach of the AO is completely opposed to settled legal principles enunciated and they have arrived at conclusions contrary to the legal principles on the subject. Further, they are finding fault with the assessee for the alleged failure of its investors in proving beyond doubt that they have the capacity to invest at the moment they did in the assessee. The Assessee is not expected to perform a near impossibility.
Undisputedly, assessee had completely produced the evidences before the AO i.e. the identity of the shareholder by filing the registered address with ROC, PAN No. along with copy of returns of income furnished with particular Ward of the department of the investors. The assessee has also received money from shareholders through account payee cheque and issued documents such as share certificate, return of allotment filed with ROC forms which were filed before the AO. The assessee has also filed copies of bank statement of the subscribers showing that it had sufficient balance in its accounts to enabled the subscriber to subscribe the share capital. In view of these facts and circumstances, once the AO has not rebutted the evidences, the AO cannot disbelieve the same and addition made under section 68 was therefore not justified.
FULL TEXT OF THE ITAT JUDGMENT
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-39, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-39/IT-346/2007-08 dated 27-08-2014. The Assessment was framed by the Deputy Commissioner of Income Tax, Circle 22, Mumbai (in short DCIT) for the assessment year 2006-07 order dated 31-12-2007 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
2. The two inter connected issues i.e. addition of share application money received by the assessee treated as unexplained under section 68 of the Act by the AO and confirmed by CIT(A) and further, confirming the addition commission paid for the share application money. For this assessee has raised the following four grounds: –
“1. On the facts and in the circumstances of the case, the Ld. Clt(A) erred in confirming addition of Rs.2,37.00.000/- wade a1s 68 of the Income Tax Act, 1961 in respect of share application money received by the appellant company Ay holding that the same are not genuine
2. On the facts and in the circumstances of the case, the LA. CIT(A) erred in confirming addition of’ Rs. 2,37,00.000/- made u/s 68 of the Income Tax Act. 1961 without appreciating the fact that the appellant has proved the identit) and credit worthiness of the subscribers and genuineness of the transaction.
3. On the facts and in the circumstances of the case, the IA. C1T(A) erred in confirming addition of Rs. 2,37,000/- treating the same as commission paid for the share application money received by the appellant company.
4. The appellant prays that addition made of 2,39,37,000/- may be deleted.”
3. Briefly stated facts are that the AO noticed from the accounts of the assessee that it had received share application money from various parties during the year under consideration, which he required to explain in term of section 68 of the Act. The issue summons under section 131 of the Act and summons return unserved. The assessee has received share application money from the following 10 parties, which is treated as unexplained under section 68 of the Act by the AO and confirmed by CIT(A). The following are the parties:
