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TMI Blog2017 (11) TMI 965X X X X Extracts X X X X X X X X Extracts X X X X ..... individuals and none of them were income tax assessee. 3. The AO has conducted the enquiry with 9 parties out of 14 to whom the shares were sold. During the course of enquiry they confirmed about purchase of shares by them in cash. Almost all of them are residing in villages and they keep their money at home. a) The amount invested by each of them being less than Rs. 50,000/- and earning income by way of agriculture. b) They had filed their affidavits and identification papers in the form of copies of-Election Commission Card etc. c) Everyone has confirmed having made investment in purchase of shares. d) Some of the persons who has not disclosed the names of their relatives, only to avoid harassment by the Income Tax Authorities. On the facts and in the circumstances of the case, the assessee has proved genuineness of the transactions and the disallowance of the loss of Rs. 15,80,705/- deserves to be fully deleted. 5. The Ld. CIT(A) has erred in applying the provisions of Section 68 of the Income Tax Act 1961 to the cash receipt of sale of shares Rs. 5,60,000/-. On transactions discussed above being proved to be genuine, the addition of cash credit of Rs. 5,60, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares were sold and what was the mode of receipt of the sale consideration. It was stated that the sale consideration was received in cash from the individuals who had purchased the alleged shares from the assessee. Further, the assessee brought on record affidavits from the individuals in support of its claim of shares sold to them. However, the AO noted that all the affidavits are of similar pattern and language wherein it was stated that they were agriculturists and have some land holdings in their names and the alleged shares were claimed to be purchased by them in cash. But, no documentary evidence regarding the immediate sources of the cash paid by them towards the purchase of the shares was furnished with the affidavits and none of the individuals were income tax assesses and neither the bank account statement of the confirming party has been furnished in support of the immediate source of the funds. In view of the above, AO observed that it is clear that the assessee company debited the sum of Rs. 1580705/- to the P&L account with an intention to adjust the income accrued to it from the Service Receipts during the year. Secondly, the unexplained cash credit of Rs. 75000/- wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of Rs. 75,000/- is unjustified and illegal. It was further stated that Ld. CIT(A) has erred in confirming the disallowance of an amount of Rs. 28,938/- out of establishment expenses on proportionate basis by applying the provision of Section 14A of the Income Tax Act, 1961 no method of apportionment is prescribed under section 14 of the Income Tax Act, 1961, disallowance of Rs. 28,938/- is arbitrary and needs to be deleted. 5. Ld. DR relied upon the orders of the authorities below and in support of his contention, he filed the Written Submission in the case. For the sake of convenience, we are reproducing the contents of the Written Submission filed by the Ld. DR as under:- "Facts and issues involved in the case and my submission (A)GOA 1, 2 & 3 Disallowance of loss of Rs. 15,80,705/- claimed by the appellant on account of sale of shares addition of Rs. 5,60,000/- u/s 68 of the I T Act on account of bogus sale of shares. (1) The assessee company claimed loss of Rs. 15,80,705/-on account of sale of shares of a sister concerns namely M/s Pentagon Screw &Fasteners Ltd. and PSB Finance and Hire Purchase L!d. This loss adjusted mainly against 'Service Receipt' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de letter dt. 27.01.2004 was at Rs. 1.06 against the sale price of Rs. 2.50 per share whereas value of shares of Ms PSB Finance and Hire Purchase Ltd was nil which was sold at Rs. 3/- and Rs. 3.50/- per share. No dividend has been declared by the company since its incorporation. It cannot be understandable at any stretch of imagination as to why the farmers staying 300Km. far in a village purchased the share of the company at Rs. 2.50, 3/- and 3.50/- per share whereas the value as per submission of the assessee was mere Rs. 1.06.and Nil. No explanation was offered from assessee's side. Reliance is placed on the ratio pronounced by the Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT 214 ITR 801 (Copy Enclosed) is very much relevant to this issue that the matter must be looked into from the angle of human probabilities. (10) Another sister concern of the assessee company M/s Hemkund Construction Ltd. has purchased shares of the same company i.e. M/s Pentagon Screw Fastener Ltd. during the same period at Rs. 10/- per share whereas the assessee company claimed to sale the same shares @2.5/- per share. Assessee was asked about this anomaly during the assessment p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs & Developers (P.) Ltd (30 taxmann.com 292, 214 Taxman 429, 350 ITR 407, 256 CTR 34) (Copy Enclosed). where Hon'ble Delhi High Court held that where assessee failed to prove identity and capacity of subscriber companies to pay share application money, amount so received was liable to be taxed under section 68. It would not be correct to state that AO should get the addresses from Registrar of Companies Website or search for the addresses of the shareholders of the company with them. Similarly, Credit Worthiness was not proved by mere issue of cheque or by furnishing a copy of statement of bank account. Circumstances might require that there should be some evidence of positive nature to show that the said subscribers had made a genuine investment acted as angel investors, after due diligence or for personal reasons. 2. CIT Vs Nova Promoters & Finlease (P) Ltd (18 taxmann.com 217, 206 Taxman 207, 342 ITR 169, 252 CTR 187) (Copy Enclosed) where Hon'ble Delhi High Court held that amount received by assessee from accommodation entry providers in garb of share application money, was to be added to its taxable income under section 68." 6. We have heard both the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmers was booked and cash amounting to Rs. 5,60,000/- was introduced in the guise of sale consideration of the alleged shares and rightly relied upon the Hon'ble Apex Court decision in the case of Sumati Dayal vs. CIT 214 ITR 801(SC). We further find that Ld. CIT(A) has rightly observed that the identity and creditworthiness of buyers and genuineness of the transactions were never established. The loss of Rs. 15.80 lacs claimed is not admissible also on account of provisions of Explanation to section 73 of the Income Tax Act. The receipts shown on sale of shares, the amount of Rs. 5,60,000/- falsely shown as sale consideration has been rightly treated as unexplained cash credit, hence, Ld. CIT(A) has rightly upheld the addition made by the AO, which does not need any interference on our part, therefore, we uphold the same and reject the ground no. 1 to 3 raised by the assessee. 6.1 With regard to ground no. 4 relating to confirmation of addition on account of share application money amounting to Rs. 75,000/- is concerned, we find that Rs. 75,000/- were received by the assessee from M/s Silverline Appliances P. Ltd. for allotment of shares. The AO made an addition of this amount st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of the total receipts of Rs. 21,83,039/- against which total establishment expenses amounting to Rs. 1,43,003/- had been debited and on this basis an amount of Rs. 28,939/- had been disallowed u/s. 14A of the I.T. Act. We note that Section 14A of the Act envisages disallowance of expenses relating to exempted income. Legislature in its wisdom has inserted the said disallowance with a view to balance the claim of exemption of dividend / any other exempt income since it was felt that it would amount to double benefit, if a business first claims a particular income as exempt and then sets off the expenditure related to the same against its other incomes. In such a situation, a prescribed method for working out this expenditure is already on the anvil. In the absence of a specified parameter of apportionment of expenditure in such a situation, the responsibility, (fiscal and moral) of determining corresponding expenditure lies with the assessee. In the absence of any such execution of responsibility, the AO left with no choice but to apportion the expenditure on estimate basis. Therefore, in this case the AO has very reasonably and scientifically worked out the proportion of the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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