2017 (7) TMI 304 - AT - Income Tax

Addition u/s 68 - unexplained share application money - proof of genuineness - Held that - The creditworthiness of Shri Harnek Singh stood proved by virtue of the copy of account of commission agent showing availability of sufficient funds on the date of making investment in assessee s company coupled with the statement of Shri Harnek Singh affirming the investment made in assessee company and explaining the source of the same as being out of his agricultural produce sold. Share application money to the extent of Rs. 4, 50, 000/- has not been proved to be genuine in the absence of creditworthiness of the applicants to make the same. The same has been held on the basis of facts on record. Merely because no addition has been made in the case of other share applicants in allegedly identical circumstances it cannot be the reason or basis for deleting the addition made in the case before us because it does not change the fact situation which calls for making addition. Even otherwise we find that the Ld Counsel has only placed copies of bank statements and the statements recorded of the other share applicants which in our view does not demonstrate that the facts were identical in all the cases.We therefore find no merit in this argument of the Ld.Counsel for the assessee and reject the same. We uphold the order of the CIT (Appeals) making addition u/s 68 on account of share application received to the extent of Rs. 4, 50, 000 and delete the balance amounting to Rs. 3 lacs pertaining to share application money invested by Shri Harnek Singh. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act, 1961, regarding share application money amounting to Rs. 7,50,000/-.
2. Creditworthiness of the share applicants.
3. Genuineness of the transactions.

Issue-wise Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act, 1961:
The primary issue in this appeal concerns the addition of Rs. 7,50,000/- made under Section 68 of the Income Tax Act, 1961, related to share application money received by the assessee from three investors. The Assessing Officer (AO) made this addition on the grounds that the creditworthiness of the investors was not proven.

2. Creditworthiness of the Share Applicants:
The assessee contended that the creditworthiness of the share applicants was demonstrated through banking channels, and the share applicants confirmed their investments along with the source of the share application money under oath. The CIT (Appeals) upheld the AO’s decision, stating that the creditworthiness was not proven due to a lack of documentary evidence supporting the share applicants’ statements about taking lands on theka for agricultural purposes. Additionally, the CIT (Appeals) noted that cash was deposited in the bank accounts of the share applicants on the same day as the investment through cheque, and the commission agent's accounts did not show sufficient funds for the investment.

3. Genuineness of the Transactions:
The assessee argued that the genuineness of the transactions was established by the bank statements, statements of the share applicants, and ledger accounts of the commission agent. The AO accepted the genuineness of transactions for other share applicants under similar circumstances but rejected it for the three in question. The CIT (Appeals) and AO found discrepancies in the availability of funds and the timing of cash deposits, leading to the conclusion that the transactions were not genuine.

Detailed Analysis:

Shri Harnek Singh:
The copy of the account with the commission agent showed cash receipts of Rs. 4,21,288/- on 10.1.2008 and Rs. 92,609/- on 3.5.2008, while the investment of Rs. 3,00,000/- was made on 8.8.2008. The CIT (Appeals) and AO failed to consider the Rs. 4,21,288/- received earlier, which demonstrated sufficient funds for the investment. Thus, the creditworthiness of Shri Harnek Singh was proven, and the addition of Rs. 3,00,000/- was deleted.

Shri Harbans Singh:
The commission agent's account showed a receipt of Rs. 3,00,000/- on 10.11.2008, while the bank statement showed a cash deposit of Rs. 3,50,000/- on 8.8.2008, with the same amount invested in the assessee company on the same date. The documents did not prove the availability of sufficient funds for the investment. Therefore, the addition of Rs. 3,50,000/- was upheld.

Shri Dhian Singh:
The commission agent's account showed a cash receipt of Rs. 2,70,857/- on 3.5.2008, while the bank statement showed a cash deposit of Rs. 3,01,000/- on 21.8.2008, with the same amount invested in the assessee company on the same date. The AO accepted the creditworthiness to the extent of Rs. 2,00,000/- and made an addition of Rs. 1,00,000/-. The addition of Rs. 1,00,000/- was upheld.

Argument of Identical Circumstances:
The assessee argued that the AO accepted the genuineness of share application money from other applicants under identical circumstances. However, this argument was rejected as the facts on record did not support the creditworthiness of the three share applicants in question.

Conclusion:
The order of the CIT (Appeals) was upheld, making an addition under Section 68 on account of share application money received to the extent of Rs. 4,50,000/- and deleting the balance amount of Rs. 3,00,000/- related to the investment by Shri Harnek Singh. The appeal was partly allowed.

Order Pronounced:
The appeal of the assessee is partly allowed.