2012 (1) TMI 251 - ITAT JODHPUR

Unexplained Cash Credits u/s 68 - One of the Director of the company had expressed his inability to provide any information regarding share capital investment made by some investors in the assessee company - AO made addition u/s 68 - Moot question was whether assessee company had received share application money or not.

HELD THAT:- Addition is based on alleged statement of that one director behind the back of the assessee. The assessee was not even afforded any opportunity of cross examination nor that director was examined in the course of assessment proceedings. Therefore, in our view, the inference drawn by AO was not correct. We found that there is no evidence that assessee had paid any commission and has refunded the amount received under the garb of share application money.

Even and otherwise, the issue is squarely covered by the decision of Hon’ble Supreme Court in case of CIT VERSUS DIVINE LEASING AND FINANCE LTD., GENERAL EXPORTS AND CREDITS LTD., LOVELY EXPORTS P. LTD. [2006 (11) TMI 121 - DELHI HIGH COURT], wherein it has been held that – If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company.

In the present case we noted that ld. CIT (A) has already taken a recourse for taking action against the respective shareholders as the Assessing Officer was directed to take necessary action against the purchaser company for such investment in purchase of shares.

Share Applications if remained unproved can be added u/s 68 or not? - Difference b/w Cash Creditor and Shareholder - Contention was is there any difference b/w cash creditor and shareholder. Further, it was contended that cash was deposited in account of the investor companies before issuing cheque to the assessee company for allotting the shares.

HELD THAT:- We would like to observe here that there is a difference between cash creditor and shareholder. In case of cash creditor, the cash creditor has right to demand the money back from the assessee. However, in case of shareholder, there is no liability of the company to refund the amount as the shares can be sold in the market. Therefore, in case of cash creditor, heavy onus lies on the assessee to prove whether cash creditor was genuine or not. However, in case of shareholder, it is held by various High Courts and Hon’ble Supreme Court that if shareholders are not genuine, then in that case no addition can be made in the hands of the company but the case can be reopened of the shareholders for enquiring about their source of buying the shares in the company.

Further, the contention regarding cash deposited in investor companies' account is without any evidence and if the cash deposited in the account of those companies then onus lies on those companies to prove that from which source the cash has been deposited in their account. The ld. CIT (A) has already directed, as stated above, to take action against the respective shareholders and, therefore, in our view, the ld. CIT (A) was justified in allowing the issue in favour of the assessee.