Loan received out of Bogus Share Capital of lender- Unexplained Income?

If appellant explained source of loans received by it and duly discharges the onus cast on him under section 68 of Income Tax Act 1961 than despite the fact that lender may have raised bogus share capital to advance  funds to appellant does not mean that loan received by appellant can be treated as unexplained income under section 68 of Income Tax Act, 1961.

If the Ld. Assessing Officer was apprehensive about the genuineness of the amount, he was duty bound to examine in the hands of the M/s Encee Securities Pvt. Ltd. or its share holders. At least, the money was germinated from the hands of the share holders, who contributed to M/s Encee Securities Pvt. Ltd. but in the hands of the present assessee, it is merely a loan and this fact has not been denied by any of the party. Even till this date, M/s Encee Securities Pvt. Ltd. has never denied that loan was given to the present assessee, therefore, the assessee is not expected to prove the source of source. In reply to notices, issued u/s 133(6) of the Act dated 19/10/2015 to few unsecured loan parties including M/s Encee Securities Pvt. Ltd., the confirmation was received by the Assessing Officer on 05/11/2015 in tapal. This fact has been mentioned in para 4.4 of the assessment order itself. In para 4.5 of the assessment order, the broad allegation has been thrust upon the business of Shri Shirish Chandrakant Shah, who was described to be receiving unaccounted cash by using 212 companies, owned by him, which includes 16 listed companies. In such a situation, whether the responsibility/addition can be fastened upon the assessee. The obvious reply is no. It is noted that addition has been made in the case of assessee broadly on the basis of statement of Shri Harish Sharma, which was retracted by him, supported by an affidavit. However, the assessee has fulfilled the conditions required u/s 68 of the Act.

We have also perused the reply dated 25/02/2016 (filed with the ACIT on 26/02/2016 page-48 of the paper book), wherein, it has been specifically mentioned that copy of statement tendered by Shri Harish Sharma was not provided to the assessee. In this reply, the assessee has duly emphasize that no addition can be made on the basis of statement of Shri Harish Sharma as the assessee has discharged the onus caste upon him and the assessee has duly complied with the requirement of section 68 of the Act by proving the identity, capacity and genuineness of the transaction. The reply contained in para-2 (page-48) clearly explains the position of the assessee. The identity of the lender, capacity and genuineness of the loan is not in doubt. Therefore, in our opinion, the addition made by the Assessing Officer in the hands of the present assessee is not justified. As mentioned earlier, if any, foul play is found then addition can be made in the hands of M/s Encee Securities Pvt. Ltd. and not in the hands of the present assessee.

ORDER

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