WD 1(2), ITA NO. 1590/AHD/2012
1ST APRIL, 2016

Core Fact of the Case : …….Assessee has raised following ground of appeal :- …………..Ld. Assessing Officer examined the share application money of Rs.26, lacs received by the assessee company, in the light of documents seized during the course of search and seizure u/s 132 in the case of M/s Mahasagar Securities Private Limited wherein it was revealed that Mahasagar Securities Pvt. Ltd. and its related group of 34 odd companies were engaged in fraudulent billing activities and in the business of providing bogus speculation profit/loss, short term/long term capital gain/loss, share application money, commodities profit/loss on commodity trading [through MCX] for many years. In the list of clients who had taken accommodation entries from these companies, the name of the present assessee i.e. M/s Harmony Yarns Pvt. Ltd. had also appeared. On the basis of statement on oath Shri Mukesh M. Choksi (the main person behind that scam and also director of all these companies) was recorded on 25.11.2009 wherein he revealed the complete modus operandi of his companies and admitted that accommodation entries for share application money he used to receive money in cash from the client and accommodation entry of that money had been provided through banking channels.

Summarised Judgment :….. We find that all the transactions were duly supported by the Share application form, acknowledgement of return of income, audited financial statements 85 bank statements, Memorandum of Association (hereinafter referred as "MOA") and Articles of Association (hereinafter referred as "AOA") of the share applicant. All the share application monies have been received through proper banking channel and there is no evidence that assessee has paid any money in cash to the share applicant in consideration of cheque received from share. No inquiry is made by the Assessing officer once the assessee has discharged his primary onus to prove the identity, genuineness and creditworthiness of the share applicants. On perusal of the bank statements of share applicant, it can be seen that no cash has been deposited by them before issue of cheque to assessee towards share application money. None of the parties are related to Assessee Company.

The assessee has proved all the three ingredients of proving a genuine cash credit by establishing identity (limited/listed companies), genuineness (transactions through normal banking channel) and creditworthiness (IT returns and balance sheet with huge share capital). If the Assessing Officer doubts the source of the source of the source, he was free to conduct inquiries in the case of persons from whom assessee has received funds. However, on that count, addition cannot be made u/s 68 in the hands of the assessee once the assessee discharges the onus on it as per the requirement of section 68.

The Assessing Officer and CIT (A) has relied upon the decision of Delhi High Court in the case of Nova Promoters Finlease Pvt. Ltd. which has been distinguished and differed by the same Delhi High Court in the case of CIT vs. Gangeshwari Metal (P.) Ltd. 30 328 wherein it was held that when an assessee brings various documentary evidences in support of its claim that share application money is genuine, no addition can be made u/s 68 of Act.

So ratio of Nova Promoters Finlease Pvt. Ltd. Does not support case of revenue. In view of above legal and factual discussion on merit, the addition made by Assessing Officer of Rs. 1,06,00,000/- (Rs. 21,00,000/- Rs. 85,00,000/-) on, account of share application money under provision of Section 68 of Act is directed to be deleted. In result, appeal filed by the assessee is allowed.

Analysis : Similar to this case, in the case of JSM also the necessary documents to prove the bonafides of the transaction and existence of companies were provided. The ITAT has also disregarded the judgment in the case of Nova Promoters Finlease Pvt. Ltd.

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