Failure to Prove Creditworthiness of Concerns Involved or genuineness of Transaction: ITAT upholds Income Tax Addition on Share Application Money [Read Order]

The Income Tax Appellate Tribunal(ITAT), Mumbai Bench, has recently in an appeal filed before it, held that addition can be made in respect of share application money, upon the failure of the assesse to prove creditworthiness of the concerns involved or the genuineness of the transaction.

The aforesaid observation was made by the Tribunal when an appeal was filed before it by the Revenue, as against the order of the Commissioner of Income-tax (Appeals), Mumbai, dated 30/07/2019, passed under section 250 of the Income-tax Act, 1961 pertaining to assessment year 2008-09.

The brief facts were that the assessee company had filed its return of income on 14/09/2008, declaring total income of Rs.17,40,372/-. Subsequently the case of the assessee was reopened vide notice under section 148 dated 16/03/2015, upon information received from the Investigation Wing during search / survey action conducted in the case of Lotus / Kamadhenu / Green Valley group dated 09/10/2014,  that the assessee company was one of the beneficiaries having received share application money of Rs.2 crores and Rs.4 crores from M/s Bhawna Computers Pvt Ltd and M/s Rowland Trexin Pvt Ltd, respectively, along with other companies totalling Rs. 12 crores.

 Subsequently, it was submitted by the assessee that the return of income filed under section 139(1) of the Act, shall be treated as return filed in compliance to section 148 notice, but the Assessing Officer passed the assessment order under section 143(3) r.w.s. 147 of the I.T. Act, 1961 dated 31/03/2016 assessing total income at Rs.12,17,40,370/-.

The Assessing Officer added Rs.12 crores credited in the books under the head ‘share application money’ by treating the same as unexplained cash credit under section 68 of the I.T. Act, aggrieved by which the assessee had preferred an appeal before the CIT(A).

And it is with the CIT(A) deleting the addition pertaining to M/s Rowland Trexin Pvt Ltd, M/s Bhawna Computers P Ltd and M/s Blue Jay Airlines Pvt Ltd., to the tune of Rs.11 crores, that the Revenue has preferred the instant appeal before the Tribunal.

While the DR stated that the CIT(A) has failed to call for the remand report and has erred in deleting the addition made by the Assessing Officer, the AR for the assessee, on the other hand, alleged that the Assessing Officer in his reasons for reopening has erroneously specified the transaction as Rs.20 lakhs and R.40 lakhs from Bhawna Computers Pvt Ltd and Rowland Trexin Pvt Ltd instead of Rs.2 crores and Rs.4 crores.

Hearing the opposing contentions of both the sides and perusing the materials available on record, the Tribunal consisting of Amarjit Singh, the Accountant Member and Kavitha Rajagopal, the Judicial Member, observed as follows:

 “The transactions in the bank statements does not inspire confidence in us that these were genuine transactions. From the assessment order of M/s Bhawna Computers P Ltd, it is seen that the said company has received share application of Rs.15,08,50,000/- from various parties which was added to the income of the said company under section 68 of the I.T Act as unexplained cash credits.”

“Similar transactions are also found in case of other alleged investor companies, and the assessee has not produced any evidence to show the actual business carried out by the alleged companies either before us or before the lower authorities and also no evidence in support of accumulated income has been filed by the assessee. Resultantly, the investment made by these companies in the assessee company lacks trust as to its genuineness and creditworthiness doubtful”, they added.

“The Assessing Officer has relied on the judgement of Hon’ble Supreme Court in the case of Navodaya Castle , wherein it was held that mere production of certificate of incorporation, PAN and other details are not suffice to prove the identity of subscriber company, which otherwise was seen to be a paper company. The Assessing Officer has further cast onus upon the assessee to prove the nature and source of receipt to the satisfaction of the Assessing Officer”, further adding to its observation the Bench noted.

Thus allowing the Revenue’s appeal, the Tribunal concluded:

“From the above observation and by placing reliance on the decision of the Hon’ble Apex Court in the case of SumatiDayalvs CIT , Navodaya Castle (P) Ltd vs CIT and NRA Iron & Steel , we hold that the order of Ld.CIT(A) is not sustainable and thereby we set aside the order of the Ld.CIT(A) and uphold the order of the Assessing Officer”.

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