Brief Facts of the Case and Question of LawBrief Facts
During AY 2003-04, the assessee had received Rs. 1.65 crores as share application money from three concerns. These three amounts were returned by the assessee in the succeeding financial year 2004-05. It is a matter of record that the amounts were retained by the assessee for about 3-4 months. The AO disallowed the entire amount of Rs. 1.65 crores on the basis of his decision that the three entities, i.e. the share applicants did not have adequate resources.
Question of Law
Whether share application money be treated as unexplained credit under section 68 on the grounds that share applicants did not had adequate means or resources?
Contention of the Assessee
The assesse submitted that the AO’s decision was appealed; the CIT (Appeals) considered the submissions of the parties and also took into account a remand report. In the course of the remand, it appeared that the three share applicants had substantial business activities and further having reasonably sized turnoverswhich establishedcapability on the part of the share applicants to have possessed the means when they applied.
The AO has not discussed any documentary evidences in the assessment order/Remand Report except giving the particulars of bank transactions of Mahan Enterprises Ltd. and so called intermediaries. The balance sheet of the creditors shows that they had sufficient funds.
No evidence has been brought on record by the AO to prove that the share application money emanated from the coffers of the applicant. The AO has not made any enquiries from the concerned parties nor did he examine the assessment records of the share applicants.
The AO has nowhere proved that documents in support of the identity of the parties have not been placed on record or they were forged documents. The AO also has not brought any evidence on record regarding the facts that the share applicants were not creditworthy or genuine, despite the fact that their PAN and copies of IT Return were submitted by the appellant.
Hence it can be concluded that the assessee has undoubtedly proved the identity of the share applicant. Once the identity of these share applicants is proved, no addition can be made in the hands of the assessee even if the share applicants have been found to be persons of no means until and unless it is otherwise proved by the revenue. The revenue could not prove that the money received by the appellant in the form of share application money has come from its own sources.
Contention of the Revenue
The AO, in the assessment order framed under Sections 143(3)/147 of the Act felt that each of the three concerns did not have the volume of business which could have reasonably enabled them to invest to the extent that they did.
The Revenue highlighted that the AO had clearly noticed that there was hardly any business transacted by the share applicants which could have legitimately allowed them to invest large sums of money in the assessee’s shares. It is also contended that merely because the share applicants had a large volume of turnover did not mean that they had sufficient funds to invest in the assessee’s shares.
Held by the High Court
The submissions by the assesse and the revenue clearly reveals that the AO’s suspicions formed the basis of including the amounts under Section 68 of the Act; whilst suspicion can be the basis for further enquiry, it can never be the ground for a conclusion.
In the present instance, the AO apparently had the books and all the relevant information pertaining to the share applicants. CIT v. Lovely Exports (P) Ltd. 2008 (216) CTR (SC) 195 directs that whilst the initial onus to prove the identity of a third party, its creditworthiness and the genuineness of the transaction by some material is upon the assessee, the burden is constantly, however, onwards upon the Revenue.
Once the initial onus is discharged, the Revenue is not absolved of its duty to collect further material which should assist it in coming to the correct conclusions.
In the present case, the course of proceedings indicates that the CIT(Appeals) had called for the Remand Report. That Remand Report clearly pointed to the three share applicants not only being genuine business concerns but also having substantial business activities and further having reasonably sized turnovers. In these circumstances, to establish implausibility on the part of the share applicants to have possessed the means when they applied, the AO ought to have probed further. He did not do so as is evident from the Remand Report where the AO did not offer any comments upon the materials taken into account by the CIT (Appeals).
Consequently, the ITAT’s order cannot be faulted.
For the above reasons, the appeal is unmerited and is consequently dismissed.