2012 (3) TMI 708 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 8,70,000/- on account of share application money.
2. Addition of Rs. 5,00,000/- on account of share application money from Money Penny Fincom Pvt. Ltd.

Summary:

Issue 1: Addition of Rs. 8,70,000/- on account of share application money

The assessee appealed against the addition of Rs. 8,70,000/- made by the Assessing Officer (AO) for the assessment year 2005-06. The AO had initially added Rs. 58,40,000/- for unexplained subscription towards share capital/share application money. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted Rs. 49.70 lacs but confirmed Rs. 8.70 lacs, citing the assessee's failure to establish the creditworthiness and genuineness of the transactions. The CIT(A) noted that the assessee only provided certificates of receipt signed by a director, lacking sufficient evidence of the creditworthiness of the share applicants. The tribunal found that the identity of the share applicants was not in doubt as they were income tax assessees with PANs and confirmation letters. Referring to the Supreme Court's decision in the case of Lovely Exports, it was held that once the identity is proved, no addition is warranted in the hands of the assessee company. The tribunal directed the department to proceed against the share applicants as per law and allowed the appeal in part by deleting the addition of Rs. 3,70,000/-.

Issue 2: Addition of Rs. 5,00,000/- on account of share application money from Money Penny Fincom Pvt. Ltd.

The CIT(A) confirmed the addition of Rs. 5,00,000/- received from Money Penny Fincom Pvt. Ltd., as the assessee failed to discharge its onus u/s 68 of the Income Tax Act, 1961. The tribunal referred to a similar case, M/s. Agrawal Coal Corporation Pvt. Ltd., where share application money from non-existent companies was treated as unexplained credit u/s 68. The tribunal found that the assessee did not prove the identity, creditworthiness, or genuineness of the transactions. The tribunal upheld the addition of Rs. 5,00,000/- in the hands of the assessee, confirming that the identity of Money Penny Fincom Pvt. Ltd. was not established.

Conclusion:

The tribunal allowed the appeal in part by deleting the addition of Rs. 3,70,000/- related to four share applicants but confirmed the addition of Rs. 5,00,000/- from Money Penny Fincom Pvt. Ltd. The order was pronounced on 23rd March, 2012.