Validity of addition done by Income Tax Odficer only because shareholder could not be produced and he was a man of no means.

Overview :

Where assessee produced share applicant before AO, but AO was of the view that share applicant had no means to make the subscription of share capital then AO could have taken action against investor for unexplained investment but no deduction could be made in assessee’s hand under section 68.

During assessment proceedings, AO noticed that assessee-company showed share application money. It was asked to furnish the details of share application money. After considering the reply of assessee, AO found that one of the person who was also shareholder of assessee, invested a huge amount of share application money. Accordingly, notice under section 133(6) was issued to that shareholder, who confirmed the transaction of share application money. But AO was not convinced with the explanation given by the said shareholder, therefore, he insisted for his presence. Assessee filed a detailed reply explaining the source from where that shareholder withdrew the amount for investing the same as share application money but showed its inability to produce that shareholder. Hence, AO was of firm belief that the said shareholder had no job work and he was hand to mouth and hence share application money received by him was added under section 68.

It is held that AO made addition only because that shareholder could not be produced and he was a man of no means. When AO was fully aware that he made investment as share application money with assessee-company, nothing could have prevented the AO to ask the source of investment from him. Further, if the source was not properly explained, addition could have been made in the hands of that person as unexplained income. By no stretch of imagination addition could be made under section 68 in the hands of assessee-company since it had discharged the initial onus cast upon it by virtue of provisions of section 68. Hence, the said addition was deleted.

Decision: In assessee’s favour.

IN THE ITAT, DELHI BENCH

N.K. BILLAIYA, A.M.

ASR Wines (P) Ltd. v. ITO

ITA No. 5440/DEL/2017

13 November, 2018

Assessee by: Somil Aggarwal, Advocate

Revenue by: Aashna Paul, Sr. Departmental Representative

ORDER

N.K. Billaiya, A.M.

This appeal by the assessee is preferred against the order of the Commissioner (Appeals) – Ghaziabad dated 2-3-2017 pertaining to assessment year 2012-13.

2. The appeal is barred by limitation by 66 days. I have gone through the prayer for condonation of delay. I am convinced that the assessee was prevented by reasonable cause for not filing the appeal in time. The appeal is condoned.
3. The solitary grievance of the assessee is that the learned Commissioner (Appeals) erred in confirming the addition of Rs. 8,50,000 on account of share application money received from Shri Achchan Khan by treating it as alleged income from undisclosed sources under section 68 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
4. During the course of scrutiny assessment proceedings, the assessing officer noticed that the assessee has shown share application money of Rs. 8.50 lakhs.

The assessee was asked to furnish the details of share application money received from 34 persons, alongwith their confirmations and copy of their bank accounts. After considering the reply of the assessee, the assessing officer found that Shri Achchan Khan, who is a share holder, invested share application money of Rs. 4.35 lakhs during the F.Y. 2009-10. He has also deposited share application money of Rs. 8.50 lakhs in F.Y. 2011-12. Accordingly, notice under section 133(6) of the Act was issued to Shri Achchan Khan, who confirmed the transaction of share application money of Rs. 8.50 lakhs. The assessing officer was not convinced with the explanation given by Shri Achchan Khan and insisted for the presence of Shri Achchan Khan from whom share application money was received.

5. The assessee filed a detailed reply explaining that Shri Achchan Khan is a member in AOP M/s. Ahmed Trader BSR from where he has withdrawn the amount out of his capital and invested the same as share application money with the assessee company. The assessee showed his inability to produce Shri Achchan Khan.
6. The assessing officer was of the firm belief that Shri Achchan Khan has no job work and he is hand to mouth and, therefore, is not a man of means to deposit Rs. 8.50 lakhs as share application money with the appellant company. Accordingly, Rs. 8.50 lakhs was added under section 68 of the Act.
7. The assessee agitated the matter before the first appellate authority but without any success.
8. Before me, the learned Authorised Representative reiterated what has been stated before the lower authorities.
9. The learned Departmental Representative supported the findings of the assessing officer.
10. I have carefully considered the orders of the lower authorities. The undisputed fact is that Shri Achchan Khan is an existing share holder of the appellant company. Therefore, his identity cannot be disputed. Moreover, the notice issued under section 133(6) of the Act was duly served upon Shri Achchan Khan, who not only confirmed the transaction, but also furnished necessary details. The assessing officer has made addition only because Shri Achchan Khan could not be produced and he was a man of no means. I fail to understand what prevented the assessing officer to issue summons under section 131 of the Act on Shri Achchan Khan. Secondly, when the assessing officer was fully aware that Shri Achchan Khan has made investment of Rs. 8.50 lakhs as share application money with the appellant company, nothing could have prevented the assessing officer to ask the source of investment from Shri Achchan Khan. In my considered opinion, if the source was not properly explained, addition could have been made in the hands of Shri Achchan Khan as unexplained income. By no stretch of imagination addition can be made under section 68 of the Act in the hands of the appellant company since it has discharged the initial onus cast upon it by virtue of provisions of section 68 of the Act. Addition is uncalled for and directed to be deleted.
11. In the result, the appeal filed by the assessee in ITA No. 5440/DEL/2012is allowed.