1 Section 68: Cash credits-Share application money-Permanent account numbers, bank details of share applicants and affidavits of share applicant company was furnished – share application money cannot be considered as unexplained cash credits.

1.        Pr. CIT-4 vs. Acquatic
Remedies Pvt. Ltd [ Income tax Appeal no 83 of 2016, Dated: 30^th
July, 2018 (Bombay High Court)]. 

A survey
was conducted on GP  by the Investigation
Wing of the Revenue. During the course of the survey, it was found that GP  was issuing bogus accommodation bills to
various concerns including the assessee and its sister companies. Consequently,
a search operation was conducted on the premises of the assessee and its sister
companies.

Thereafter,
assessment orders were passed u/s. 153(3) r.w.s 153A of the Act by the A.O for
A.Ys 2005-06 to 2009-10 making additions under the following heads :-

(a) on account
of introduction of share capital as unexplained cash credit u/s. 68 of the Act
;

(b) on
account of bogus purchases;

(c) on
account of commission paid at 2% for accommodation bills ; and

(d) on
account of cash discount at 5% on cash purchases.

The CIT(A)
for subject AYs confirmed the addition on account of unexplained cash credit
u/s. 68 of the Act relating to introduction of share capital. However, the
CIT(A) by common order partly allowed the Appeal to the extent of deleting
commission of 2% in respect of the share capital and on account of 5% discount
on purchases in respect of share capital.

Being
aggrieved, both the Revenue, as well as, the assessee filed appeals to the
Tribunal. The Tribunal, allowed the Appeal of the assessee on issue of cash
credit and also in respect of commission and cash discount as held by the CIT
(A) while dismissing the Revenue’s Appeal.

The
Revenue  in appeal before High Court  challenges the order of the Tribunal that the
identity and creditworthiness of the shareholders is not established and the
genuineness of the transaction not being established, the Tribunal ought not to
have allowed the assessee’s appeals.

The Hon.
High Court finds that the persons who invested in the shares of the assessee
had PAN numbers allotted to them which was made available by the assessee to
the A.O. Besides, the shareholders had also filed Affidavits before the A.O
pointing out that they had invested in the shares of the assessee out of their
own bank accounts. Copies of acknowledgement of Return of Income of the
shareholders was also filed. The assessee also requested the A.O to summon the
shareholders. These evidences have not been shown to be incorrect. Therefore,
the objection with regard to identity of the shareholders not being established
does not survive. So far as, the creditworthiness of the investors is
concerned, these Appeals are of AYs prior to AY: 2013-14. It was only with
effect from 1^st April, 2013 i.e. from the Assessment Year 2013-14
that a proviso was added to section 68 of the Act which required the person
investing in shares of any Company to satisfy, if required by the A.O, the
source of the funds which enabled the investments in shares.

So far as
the genuineness of the investment by the shareholders is concerned, Revenue
placed reliance upon the statement of Kamlesh Jain who was an employee, as well
as, the shareholder of the assessee and that during the course of the search,
certain blank transfer forms were found in the possession of the assessee.
Besides, it is submitted that the shares were supposed to be finally
transferred to the family members of the Directors of the assessee company at a
discounted price.

The
Tribunal records the fact that copies of the share application form, share
allotment Register and Bank Statements showing receipt of funds were on record.
Moreover, all the shareholders had filed Affidavits declaring the fact that
they are investing in the assessee company by issuing of cheques from their
Accounts. Infact, the statement very categorically states that, he did not
intend to purchase any shares of Aqua Formulations (P) Ltd., but no such
declaration is made in respect of the investment made by him in the assessee
Company. Thus, there is no conclusive evidence in support of the above
submission in the context of the assessee. It records, that the entire basis of
the Revenue’s case is based on surmise that the assessee was taking bogus
purchase bills and cash was introduced in the form of share capital without any
evidence in support.

Regarding  cash discount at 5% on cash purchases  and commission paid at 2% for obtaining
accommodation bills treating the same as unexplained expenditure. The court
held that there is no unexplained expenditure nor any bogus purchases.
Accordingly, the  Appeals were dismissed.