TMI Blog2012 (8) TMI 1025X X X X Extracts X X X X X X X X Extracts X X X X ..... even if share applicants were bogus with which as held earlier we do not agree. In our view, these aspects are required to be examined at the level of CIT(A). - ITA No. 2096/Mum/2011 - - - Dated:- 10-8-2012 - SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER For the Appellant: Shri A.C. Tejpal For the Respondent: Ms. Mathuria O R D E R PER RAJENDRA SINGH, AM: This appeal by the revenue is directed against the order dated 30.12.2010 of CIT(A) for the assessment year 2001-02. The only dispute raised by the revenue in this appeal is regarding addition of ₹ 6,15,50,000/- made by the AO on account of share application money. 2. The facts in brief are that there was a search conducted under section 132 of the Income tax Act (the Act) in case of M/s. SKS Ispat Group Ltd. including the directors and associate companies of the group in which the assessee was also covered. Based on the material found in the search, the assessment in case of the assessee was reopened under section 147 of the Act. During the reassessment proceedings, the AO noted that the assessee had received share application money of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ranging from 10 paise to 15 paise or monthly lump-sum amount. These associated companies and entities had confirmed involvement of Shri Hiten Mehta and Shri Himanshu Mehta as main persons in statement under section 131. The AO also observed that there were numerous inter-company and intra-company transactions for providing accommodation entries. Through the circuitous transaction, unaccounted cash/black money had been laundered. The AO in para 8.3 had listed 15 persons involved in these transactions and 169 companies firms which also included name of the assessee and the companies from whom the assessee had received share capital during the year. 3. The AO examined the bank account of three companies from whom the assessee had received share application money and noted that these companies had accounts in Corporation Bank Ltd., Hill Road, Bandra (W). In these accounts, there were huge transactions running into several crores including cash deposits and several transfer entries. After examination of the bank accounts, AO noted that the sources of share application money was receipt from other concerns whose accounts were also located in the same bank in which there we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncluded that the assessee had paid cash and received share application money by cheque. He, therefore, added the amount as income of the assessee under section 68 of the Act. 4. The assessee disputed the decision of AO and submitted before CIT(A) that the assessee had received the share application money on payments made through banking channel and shares were allotted as per Companies Act. The assessee had filed confirmations from share applicants giving their P.A. Nos. etc. Assessee had also filed copies of application forms, copies of audited balance sheet of share applicants and income tax return acknowledgement receipt filed by them. The assessee had also filed copy of bank account of the assessee showing that money had been paid through banking channel. The applicant companies were listed companies and their identity could not be questioned. The audited accounts established their credit worthiness. It was also argued that once the identity of the subscribers was established, no addition could be made in case of the assessee on account of share application money even if the subscribers were found to be bogus as held by Hon'ble Supreme Court in case of Lovely Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other hand strongly supported the order of CIT(A). He, reiterated the submissions made before the lower authorities that share application money had been received, through banking chanels and subscribers were assessed to tax with P.A. Numbers. The assessee had filed confirmations with P.A. Number, copy of audited balance sheets and income tax returns acknowledgement slips of the subscribers. As regards the statement of director Shri Mahajan the assessee had submitted before CIT(A) that the assessee had not been given any notice that the statement would be used against the assessee. The assessee had filed copy of affidavit of Shri Mahajan retracting from the statement as additional evidence which has not been admitted. It was also submitted that no independent material has been brought on record to show that the assessee had indulged in accommodation entries. It was accordingly argued that no addition could be made in case of the assessee. Reliance was placed on the judgment of Hon'ble Supreme Court in the case of CIT vs. Lovely Exports (P) Ltd. (299 ITR 268), the judgment in case of CIT vs. Gujarat Heavy Chemicals Ltd. (256 ITR 795); and the judgment of Hon'ble Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of bank statement as given on next page Please explain and clarify each entry. Please state type of nature of this entry of these transactions. Ans : I confirm that I have seen and gone through the bank a/cs. shown by you. I do not know anything about these entry and transaction. I was working as employee of Shri Himanshu Mehta in good faith he had taken my signatures in the A/c. Opening Form. I was also made Directors of these companies. I was not real beneficiary of these entries and transactions. I have no knowledge of exact nature of these companies. I was not given major share on these transactions. I was given nominal meager charges for becoming Director, as per my knowledge these are mere entries and no real transfer. You have mentioned in the question above belong to SKS Ispat Ltd. about which I don t know anything. The transactions done by all the 4 companies are merely entries of share capital, share application money, share premium and loans. These transactions are backed by cash receipts and cash payments for various entries. 6.1 It was also noted that Shri Paresh Mahajan and Mrs. J.P. Mahajan were the only directors of the company. There are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra). Recently the Hon'ble Supreme Court in the case of CIT vs. Lovely Exports (P) Ltd. (supra), have held that even if share application money is received by the assessee company from alleged bogus share holders, it cannot be regarded as undisclosed income of the assessee. It was also held that the department in that case was free to proceed to re-open the individual assessments of share applicants. The word bogus referred to in the said judgment in our view does not mean that the share holders are non-existent because in that case no action can be taken by the department in those cases as suggested by Hon'ble Supreme Court. In our view, a reasonable interpretation of the word bogus would be that the share holders existed but they did not have capacity to invest in share application money and in that case as held by Hon'ble Supreme Court their individual assessments can be reopened. However, there may be cases where share holder exists and also has credit worthiness but transaction itself may not be a genuine one but merely an accommodation entry. Once the transaction itself is not genuine the cash credit can not be taken as explained satisfactorily. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. Further merely because money has come through banking channel, transaction can not be accepted as genuine as held by Hon'ble Supreme Court in the case of CIT Vs P. Mohanakala (291 ITR 278) in which considering the entirety of surrounding circumstances, the genuineness of cash credits though received through banking channel was not accepted. We are, therefore, unable to sustain the finding of CIT(A) that the share application money has to be accepted as explained satisfactorily even if there is material to show that the transaction was not genuine and only an accommodation entry. 6.4 However we find that the assessee had raised disputes before CIT(A) regarding the statement of Shri Mahajan referred to by AO in assessment year and had also filed additional evidence in the form of affidavit of Shri Mahajan retracting from the statement. The assessee submitted before CIT(A) that AO had not made it clear as to in which case Shri Mahajan had given statement as he was director in several companies. It was also not clear whether copy of bank accounts shown to Shri Mahajan belonged to assessee or not. The assessee had requested for admission of additional evidence in the form o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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