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)]. 

[DCIT vs.  Acquatic Remedies Pvt. Ltd; dated 17/04/2015, Mum.  ITAT ]

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.