2018 (4) TMI 1561 - AT - Income Tax

Cash Credits/unaccounted payments - Held that - From the appraisal of the records before us, it emerges that the assessee received share application money from two companies ₹ 8 Crores from M/s BPO Finance & Investment Pvt. Ltd., Kolkata and ₹ 10.00 Crores from M/s Panchmukhi Properties Pvt. Ltd., Kolkata, totaling to ₹ 18.00 Crores routed through normal banking channels. Investigations by the Departments authorities below reveal that Shri Dinesh Kumar Singhi and Snehalatha Singhi are owners and 100% share holders of the aforesaid two companies who introduced the share application money in the assessee company and it was in this context that the investments in the assessee company and its 4 group companies i.e M/s BMM, M/s BMM Cements Ltd., M/s Ranjitpura Infrastructure Pvt. Ltd., and M/s Singhi Holdings Pvt. Ltd., was brought to tax in the hands of Smt. Snehalatha Singhi and Shri Dinesh Kumar Singhi in the ratio of their share holding in the two aforesaid companies M/s BPO Finance & Investments Pvt. Ltd., and M/s Panchmukhi Properties Pvt. Ltd., on substantive basis u/s 69 of the Act. It is in this factual matrix of the case that the ld CIT(A) deleted the protective additions made u/s 68 in the case on hand. Respectfully following the decision of the Hon ble Apex Court in the case of Lovely Exports Pvt. Ltd., (2008 (1) TMI 575 - SUPREME COURT OF INDIA) which was followed by the jurisdictional High Court in the case of CIT Vs. Arunananda Textile Pvt. Ltd., (2010 (3) TMI 724 - KARNATAKA HIGH COURT), the addition made by the AO in respect of share application money on protective basis as unexplained cash credits u/s 68 of the Act and deleted by the ld CIT(A) in the impugned order cannot be treated as unexplained cash credits in the hands of the assessee. Consequently, the grounds (i) and (ii) raised by Revenue are dismissed.

Summary

Issues Involved:
1. Deletion of addition made towards unexplained cash credits/unaccounted payments of ?18 Crores under Section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made Towards Unexplained Cash Credits/Unaccounted Payments of ?18 Crores:

Background:
- The assessee-company filed its return of income for Assessment Year 2010-11 declaring NIL income. The assessment was concluded under Section 143(3) of the Income Tax Act, 1961, determining the income at ?18 Crores due to disallowance/addition of ?18 Crores as unexplained cash credits under Section 68 of the Act.
- On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] allowed relief to the assessee, which led to the Revenue filing an appeal before the Tribunal.

Revenue's Contentions:
- The Revenue argued that the CIT(A) erred in deleting the addition made protectively towards unexplained cash credits.
- During a search under Section 132 of the Act, it was found that the assessee received share application money from M/s. BPO Finance and Investments Private Limited and M/s. Panchamukhi Properties Private Limited amounting to ?18 Crores, which were routed through shell companies and considered as unaccounted sources.
- The Revenue contended that these companies were shell entities without fixed assets or business activities, involved only in fund transfers, and that the assessee failed to provide details of the directors or the companies’ genuineness.
- The Revenue relied on the findings from the case of Shri Dinesh Kumar Singhi and Mrs. Snehalatha Singhi, where similar issues were raised, and the share application money was treated as unexplained income.

Assessee's Contentions:
- The assessee argued that the addition of ?18 Crores was arbitrary and that all transactions were done through banking channels, with all necessary details like certificate of incorporation, bank statements, PAN numbers, income tax returns, and balance sheets provided to establish the identity and financial ability of the investors.
- The assessee relied on judicial precedents, including CIT v. Lovely Exports (P) Ltd., which held that share application money cannot be regarded as undisclosed income in the hands of the recipient company.

Tribunal's Findings:
- The Tribunal noted that the assessee received share application money from two companies, totaling ?18 Crores, routed through normal banking channels.
- It was found that the share application money was introduced by entities owned by Shri Dinesh Kumar Singhi and Snehalatha Singhi, who were 100% shareholders of the companies involved.
- The Tribunal referred to the Supreme Court’s decision in CIT v. Lovely Exports Pvt. Ltd., which stated that if share application money is received from alleged bogus shareholders, the Department should proceed to re-open their individual assessments, not treat it as undisclosed income in the hands of the recipient company.
- The Karnataka High Court in CIT v. Arunananda Textiles Pvt. Ltd. also held that it is not for the assessee to establish the creditworthiness of the shareholders but for the Department to investigate.

Conclusion:
- The Tribunal upheld the CIT(A)’s decision to delete the protective addition made under Section 68 of the Act, as the share application money cannot be treated as unexplained cash credits in the hands of the assessee.
- Consequently, the grounds raised by the Revenue were dismissed, and the appeal for Assessment Year 2010-11 was dismissed.

Order Pronouncement:
- The order was pronounced in the open court on the 10th day of April, 2018.