DCIT vs. Alcon Biosciences P Ltd (ITAT Mumbai)

(i) The AO made additions towards share application money u/s 68 of the Act on the ground that the assessee has failed to discharge identity, genuineness of transaction and creditworthiness of the parties which is evident from the fact that the AO has brought out certain facts with regard to the share applicants by issuing notice u/s 133(6) of the Income-tax Act, 1961.

(ii) According to the AO, the assessee has raised share application money from three companies and all the three companies are having bank accounts in Bank of Baroda where a single person has operated the accounts of all the companies.

(iii) The AO further observed that the share applicants have received money from certain individuals before the date of transfer of money to the assessee company and those individuals have deposited cash on the same day or a day before the date on which the money has been transferred to share applicants’ bank account.

(iv) The AO further observed that notice u/s 133(6) were not served and the parties refused to accept the notice. The AO also observed that the assessee failed to explain how it has issued share having face value of Rs.10 with a huge premium of Rs.990 per share when it was an unlisted company.

(v) Therefore, the AO opined that the assessee has obtained accommodation entries from so-called share applicants to convert its own undisclosed income in the guise of share application money. Accordingly treated share application money received from all the three parties as unexplained credit and brought to tax u/s 68 of the Act.

(vi) The AO has made addition towards share application money on the basis of analysis of bank statements of share applicants and the source of applicants’ bank accounts. The assessee has filed various details including share application forms, incorporation certificate of the share applicants and their bank statement.

(vii) The assessee also furnished copy of income-tax return acknowledgment in respect of M/s Hemang Fincap Services Pvt Ltd. On verification of details filed by the assesse, we find that the share applicants have paid share application money to the assessee through bank accounts and also disclosed investments in their financial statements for the relevant financial year. Though two share applicants have not filed their income-tax returns, furnished copy of PAN and their bank statements.

(viii) Once the assessee has discharged its initial burden cast u/s 68 by filing documents to prove identity, genuineness of transactions and creditworthiness of the parties, then the burden shifts to the revenue to prove otherwise. In this case, the AO does not have any evidence which could rebut the documents produced by the assessee.

(ix) The AO made addition only on the basis of suspicion and surmises on the ground that the share applicants do not have any capacity to explain amount transferred to their account.

(x) Having considered facts, we do not find any merit in the arguments of the revenue for the reason that once the assessee has furnished necessary evidence to prove the identity of the share applicants and their PAN details to the AO, then the department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of the assessee.

(xi) This legal proposition is supported by the decision of Hon’ble Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd (2008) 216 CTR (SC) 195, wherein it was categorically held that the AO cannot make addition towards share application money, if the names and addresses and PAN of the creditors have been furnished to the AO.

(xii) This legal proposition is supported by the judgment of Hon’ble Supreme Court in the case of CIT vs Orissa Corporation Pvt Ltd 1986 AIR 1849.

(xiii) The jurisdictional High Court of Bombay in the case of CIT vs M/s Gagandeep Infrastructure Pvt Ltd (2017) 394 ITR 680 (Bom) and CIT vs Paradise Inland Shipping Pvt Ltd in ITA No. 66 of 2016 dated 10-04-2017, has reiterated the legal position laid down by the Hon’ble Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd (supra).

(xiv) The sum and substance of the ratios of the Hon’ble Supreme Court and jurisdictional High Court, is that once the assessee has furnished names and addresses alongwith PAN of subscribers, then the AO is free to reopen the assessment of subscribers in accordance with law, but the share application money cannot be regarded as undisclosed income of the assessee.

(xv) Insofar as the argument of the Ld.DR in the light of Company Master Data taken from ROC website that the names of two companies have been struck off by the ROC, we find that the ROC has struck off the names of two companies for the reason that those two companies have not filed their annual accounts for few years, but fact remains that the assessee has furnished letters from those two companies wherein they have admitted that their names have been struck off by the ROC for non filing of annual accounts, but they are in the process of restoring the names by filing an application before NCLT.

(xvi) As regards the AOs observation with regard to the issue of shares at a face value of Rs.10/- issued at a premium of Rs.990 per share, we find that there is no merit in the findings of the AO for the reason that the issue of shares at a premium and subscription to such shares is within the knowledge of the company and the subscribers to the share application money and the AO does not have any role to play as long as the assessee has proved genuineness of transactions.

(xvii) We further notice that the AO cannot question issue of shares at a premium and also cannot bring to tax such share premium within the provisions of section 68 of the Act, before insertion of Proviso to section 68 by the Finance Act, 2012 w.e.f. 1-04- 2013 as the Hon’ble Bombay High Court in the case of CIT vs M/s Gagandeep Infrastructure Pvt Ltd (supra) held that Proviso inserted to section 68 is prospective in nature.

(xviii) In this view of the matter and considering the ratios of the case laws discussed above, we are of the considered view that the assessee has proved identity, genuineness of transaction and creditworthiness of the parties insofar as 3 share applicants are concerned. The CIT(A), after considering relevant facts has rightly deleted addition made by the AO. We do not find any error in the order of the CIT(A); hence, we are inclined to uphold the findings of the CIT(A) and dismiss the appeal filed by the revenue.